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Full text of "The apportionment of loss and contribution of compound insurance; a clear explanation of the various rules, with examples"

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The Apportionment of Loss 



AND 



Contribution of Compound 
Insurance 



A CLEAR EXPLANATION OF THE VARIOUS 
RULES, WITH EXAMPLES 



W. H. DANIELS 

ADJUSTER 

CHICAGO 



Third 

Revised Edition 

1913 



PUBLISHED BY 

The Rough Notes Co. 

Indianapolis, Ind. 



^3 



DEDICATORY. 

My father, Henry J. Daniels, and my mother, dur- 
ing the early years of their married lives, resided 
on a farm in a sparsely inhabited section of the 
country, where the land was covered with large 
trees; and from the products obtained off of a small 
clearing on this farm — the results of much hard labor 
and exposure to inclement weather — they provided 
for the family and gave us plenty of plain and sub- 
stantial food to eat, suitable clothes to wear and a 
comfortable place to live. 

With many sacrifices and deprivations on their 
part, made with that unselfishness which showed the 
extent of the love it is possible for a father and 
mother to have for a child and the interest they took 
in the success of their children, they made it possible 
for me to have the opportunities to obtain an educa- 
tion, not within the reach, during my school days, 
of the average country boy. 

I feel that to them, in a very great degree, if not 
entirely, I owe whatever success I have attained or 
met with, and in this way I wish to express and 
hope to show my full appreciation of what they have 
done for me and made it possible for me to do for 
myself. Therefore, with that love, respect and rever- 
ence due a loving and unselfish father and mother 
by a son, I dedicate to them this work with what- 
ever merit it contains. 

W. H. DANIELS. 



PREFACE TO THIRD EDITION. 

The first edition of this work was, in part, written 
by me, as a reply to a letter received from my friend, 
W. H. Gillespie, of Nashville, Tenn., who at that time 
was the special agent of the Continental Insurance 
Company, of New York, in Tennessee. 

His letter was as follows: 



MR. GILLESPIE'S LETTER. 

Nashville, Tenn., July 1, 1901. 
W. H. Daniels, Esq., Special Adjuster, Continental In- 
surance Company, Chicago, 111.: 
Dear Sir — I am in need of some information as to 
the correct method of making the apportionment of 
the insurance, where there is a general policy cover- 
ing under one item, property which is specifically 
insured in other policies, as two or more items, and 
trust that you have the time to give me the desired 
information. I find the opinion of many of the ad- 
justers I meet is that the specific insurance should 
first be exhausted, and the general insurance pay 
the remainder. It seems to me that if this custom 
were practiced at all times, it would work a hard- 
ship on the company carrying the specific insurance, 
where there is a partial loss only, on the goods cov- 
ered by such specific policy. There are other meth- 
ods resorted to for an apportionment of the insur- 
ance in these cases, but none of them seem to fairly 
and completely cover the conditions which exist in 
this class of claims, though all of them seem more 
equitable and more in accord with the policy than 
the one I have mentioned as being in general use. 

I have in mind a case which I will take the liberty 
of submitting to you. If you are in possession of 
any information by which this kind of loss is treated, 
I hope you will give it to me. 

In the case I wish to submit, the Continental in- 
sures $2,500 on wheat, $3,000 on com and $2,000 on 
oats, making a total insurance of $7,500. The Aetna 
insures $5,000 and the Home $6,000 on grain. The 
sound value of the wheat was $8,000, corn $7,000 and 
of oats $10,000. The loss on wheat was $3,000, corn 
$4,000 and on oats $8,000. What would be the proper 
way to apportion this insurance, and what amount 
would each company pay? 



545691 



If you should have in your possession a form that 
would facilitate the apportionment of such losses, I 
would appreciate your furnishing me with such form 
and any information you think will aid me. Yours 
very truly, ' W. H. Gillespie, 

Special Agent. 

The second edition of this work was much more 
complete than the first, and considerably larger, but 
it remained in the form of a communication. 

In this edition, which is much larger than the sec- 
ond, I have changed it from the form of a letter and 
have indexed it, showing where the different subjects 
treated can be found; also, it contains an index of 
the cases cited and the decisions given in full. 

This edition is necessitated by the large demand 
for a work of this kind, and it is now, as a book of 
reference, much more valuable than heretofore, be- 
cause of the increased size, change in form and the 
indexes. 

AUTHOR. 
December 1, 1912. 



7"/ie Apportionment o/Loss and 

Contribution of Compound 

Insurance. 



An adjustment problem was submitted to me by a 
friend, where the assured had three policies, insur- 
ing him against loss or damage on grain; some of the 
insurance being specific and some compound. 

The adjustment shows that there was a loss of 
$3,000 on wheat where the sound value was $8,000; 
that corn worth $7,000 was damaged $3,000, and that 
the loss on his $10,000 worth of oats was $8,000. You 
say that the Aetna policy covered $5,000 on grain 
and that the Home policy was for $6,000 on grain, 
while the Continental policy covered specifically 
$2,500 on wheat, $3,000 on corn and $2,000 on oats. 

If I were to make the proper apportionment of the 
compound insurance and figure the contribution to 
be made by each company, it would dispose of this 
claim, but if I should do that and nothing more, it 
would not explain the full scope of the rule I apply 
and why I use it rather than some one of the other 
rules now being used. 

That I may show my position on this class of claims 
and explain fully the reasons I have for insisting on 
the application of a certain rule, prompts me to go 
into the discussion of the whole question. 

We may not fully realize the importance of the 
proposition which was submitted to me for my con- 
sideration. It involves some of the most intricate 
questions we find in the adjustment of losses, and for 
many years such cases as you have submitted have 
been the source of serious anxiety in the loss de- 
partments of the various insurance companies, and 
have been the basis for a large number of contests 
before the courts. The insurance men of the past, 
and of to-day, who were, and are, because of their 
interest and work in the adjustment of loss claims, 
thoroughly posted, have not agreed and do not agree 
what each company should pay in such a case as 
you have submitted. Similar cases have received 
the attention of the courts during the past fifty years. 



8 the! AtrPORTIONMENT OF LOSS AND 



and it is safie to say that the decisions of the courts 
as to how the losses in this case should be appor- 
tioned among the companies are not in harmony. 

In the case of the Howard Insurance Company vs. 
Scribner, which was before the Supreme Court of the 
State of New York, the judges say in their decision: 

"It is not denied that the division must be entirely 
arbitrary, and the different methods proposed by the 
parties best accord with their respective interests. 
Neither has cited any cases where such a thing has 
been done, nor mentioned any principle by which 
we should be authorized thus to modify the contract 
of parties. Something like it was, I perceive, once 
attempted by a private hand, and with about the same 
success as has attended the efforts of counsel here." 

The above language was used by Judge Cowen, who 
wrote the opinion. 

Judge Ostrander, in his work entitled, "Ostrander 
on Fire Insurance," when commenting on the de- 
cision of Judge Cowen, above referred to, says: 

"Then, as now, no learning of the courts, no in- 
genuity of the counsel, can explain that which is 
essentially inexplicable. Cases are sometimes pre- 
sented where the complications defy human under- 
standing. When this occurs — when reason is baffled 
and mathematics fail — arbitrary action becomes a 
necessity. The knot we cannot untie must be cut." 

When we stop and carefully consider the various 
rules which are arbitrarily applied in these cases 
by the adjusters of to-day, we are justified in asking 
the question: What improvement has the last fifty 
years produced in the apportionment of the insurance 
and losses in such cases as you have submitted? 
This question is somewhat simplified now by the use 
of policies which contain a uniform pro rata con- 
tribution clause. 

It would seem that from the various decisions which 
have been made by the highest courts in the States, 
as well as by the circuit courts and Supreme Court 
of the United States, in this class of cases, some rule 
of apportionment and contribution could be formed. 
When these cases come before the courts for a de- 
cision, the court has presented, usually, only two 
propositions. One proposition is made by the plain- 
tiff and another is contended for by the defendant, 
and the rule which each contestant urges for the 
consideration of the court is that one which will best 
serve his interest. 

The courts have repeatedly decided that if the as- 
sured in such cases as you have submitted has as 



CONTRIBUTION OF COMPOUND INSURANCE. 9 

much or more insurance than the amount of loss, 
his loss must be paid in full, and no rule of appor- 
tionment which fails to pay the loss in full will be 
recognized by the courts. 

The decision of the courts, to permit no rule of 
apportionment of compound insurance to be used 
which deprives the assured of his full loss, when his 
total insurance is equal to or greater than his loss, 
should not be treated as applying to cases where 
there is no compound insurance. This rule of the 
courts takes effect only, when it becomes necessary 
because of non-concurrent insurance, to make an arbi- 
trary apportionment of compound insurance. When 
the policies fix the specific insurance, or the loss lia- 
bility is provided for in the policies and they are con- 
current, the only question being as to the amount 
each policy will contribute to satisfy the claim, there 
is no arbitrary apportionment of the insurance, and 
therefore the assured is not entitled to the applica- 
tion of this generous rule of the courts. 

Sometimes these cases come before the courts be- 
cause the companies do not agree on a rule of appor- 
tionment, and the assured is forced to ask the aid of 
the courts to effect a settlement; but generally the 
assured is compelled to bring suit because some com- 
pany, or companies, insist on applying a rule of ap- 
portionment, which gives a salvage and fails to in- 
demnify the assured for his loss. 

If you should study the decisions made by the 
courts, you would very quickly become convinced that 
the courts' consideration of any case was confined to 
the two proposiiions oi* rules of apportionment con- 
tended for by the parties to the suit. The rule which 
would pay the full loss would receive the approval 
of the court, though the same rule — if the losses 
were different on the various items — would, if ap- 
plied, fail to pay the loss in full, and would therefore 
be rejected. 

In the case of Angelrodt & Barth vs. Delaware Mu- 
tual Insurance Company, 31 Mo. 593, the lower court 
applied the Reading rule, and while the loss exceeded 
the insurance, the application of this rule gave the 
defendant a salvage. 

THE READING RULE. 

Compound insurance shall contribute with specific 
in proportion as the value of the specific property 
bears to the value of all the property covered by the 
compound policy. 



10 THE APPORTIONMENT OF LOSS AND 

The Supreme Court rejected this rule, and said the 
rule was all right; but, as it gave the insurance com- 
pany a salvage when the loss exceeded the insurance, 
it could not be applied. 

The court applied the Cromie rule, and it gave the 
assured the whole of the insurance, which was $175.75 
less than the loss. 

THE CROMIE RULE. 

When the compound insurance covers property 
which is not covered by the specific insurance, a por- 
tion of the compound insurance equal to the amount 
of loss on the property not covered by the specific 
insurance, must be set aside to pay tHe loss. The 
remainder of the compound insurance contributes 
with the specific to pay the loss on the property cov- 
ered by the specific insurance. If the loss on the 
property covered only by the compound insurance 
is equal to or greater than the amount of the com- 
pound insurance, the compound insurance will be ex- 
hausted and there will be nothing to contribute from 
to help out the specific insurance. 

The decision in this case will give you some idea 
of the reasons why the opinions of the courts have 
not established the rules to be applied in all these 
cases, for the apportionment of compound insurance. 

THE INSURANCE CONTRACT. 

In considering this class of claims, it is of the 
utmost importance to have a correct understanding 
of the insurance contract. We are in the habit of 
speaking as if the property was insured. We fre- 
quently say and hear it said: "The barn was in- 
sured," or "The horse was insured." By using these 
erroneous expressions we are apt to lose sight of the 
real agreement. 

It is a personal contract, and does not insure prop- 
erty, but does insure the assured. 

It is an agreement on the part of the insurance 
company to indemnify the assured for loss or diminu- 
tion of value of the property described in the policy, 
resulting from the cause or causes of loss and dam- 
age mentioned in the contract. 

In May, on insurance, the author says: 

"Whether the subject-matter of insurance be a 
ship, or a building, or a life, or whatever else it may 
be, although in popular language it may be called 
an insurance upon the ship or building or life, or 



CONTRIBUTION OF COMPOUND INSURANCE. 11 

some other thing, yet it is strictly an agreement with 
some person interested in the preservation of the 
subject-matter to pay him a sum that will amount to 
an indemnity." 

Lord Chancellor Hardwicke said: 'To whom or 
for what loss are they (the Hand-in-Hand Fire Office) 
to make satisfaction? Why, to a person insured and 
for the loss he may have sustained; for it cannot 
properly be called insuring the thing, for there is no 
possibility of doing it, and therefore must mean in- 
suring the person from damage." 



PRO RATA CONTRIBUTION CLAUSE. 

The contribution between the companies to pay the 
loss is provided for by the pro rata contribution clause 
of the policy. (See lines 96 to 100 of the New York 
standard policy, which are) : 

''This company shall not be liable under this policy 
for a greater proportion of any loss on the described 
property, or for loss by, and expense of, removal from 
premises endangered by fire, than the amount hereby 
insured shall bear to the whole insurance, whether 
valid or not, or by solvent or insolvent insurers, cov- 
ering such property, and the extent of the application 
of the insurance under this policy or of the contribu- 
tion to be made by this company in case of loss, may 
be provided for by agreement or condition written 
hereon or attached or appended hereto." 

The portion of this clause, which is the basis for 
our consideration of this proposition, is: 

"This company shall not be liable under this policy 
for a greater proportion of any loss on the described 
property * * * than the amount hereby insured 
shall bear to the whole insurance * * * covering 
such property * * *." 

It is important at this time to understand fully 
what is meant by the words, "covering such prop- 
erty." The company insured the assured, and by its 
policy agrees to indemnify him against loss or dam- 
age to the described property. The total property 
described and covered under a fixed amount may be 
composed of several classes, or it may be in several 
locations, or the subject of insurance may be several 
interests, and the loss may be on less than all the 
classes, or in less than all the locations, or on less 
than all the interests. 

It should be remembered when considering this 
question of apportionment and contribution of non- 
concurrent insurance, that the rules apply only when 



12 THE APPORTIONMENT OF LOSS AND 

all the policies involved are issued to the same as- 
sured. The non-concurrency, because of different in- 
terests, does not mean different interests created be- 
cause of joint ownership, or because the property is 
owned by two or more persons doing business as a 
partnership, when one or more of the joint owners, 
or partners, insure their individual interests. The 
different interests contemplated are those created by 
the use of the limitation clauses, which I will call 
your attention to later. 

If the policy covered on all the classes, or in all 
the locations, or on all the interests, after the fire as 
before, the insured might be deprived of his full in- 
demnity, though insured for more than the amount 
of loss. The facts are that all the insurance named 
in the policy, which is the specific insurance liability 
on different classes, or in different locations, or on 
different interests, unless there is an average clause, 
distribution form, covers for the purpose of paying 
the loss on that portion of the described property 
which has been destroyed or damaged. 

This point is of much importance, and is really in- 
dispensable to a proper consideration of the proposi- 
tion submitted, and for that reason I take the liberty 
of copying extensively from the case of Page Bros, 
vs. Sun Fire Office, decided by the United States 
Circuit Court of Appeals, and the case of the Le 
Sure Lumber Company vs. Mutual Fire Insurance 
Company of New York, decided by the Supreme 
Court of Iowa. 

In the case of Page Bros. vs. Sun Fire Office, which 
was decided in November, 1896, there were two lum- 
ber yards and there was specific insurance on the 
lumber iri each and compound insurance, covering 
lumber in both yards. The loss was confined to one 
yard. 

STATEMENT. 

''Edward S. Page and Chas. H. Page, co-partners 
as Page Bros., the plaintiffs in error, were the own- 
ers of lumber, lath and shingles of the value of $59,- 
095.52, situated on two blocks in the city of Anoka, 
Minn. That portion of this property situated on the 
easterly of these two blocks was worth $16,727.06, 
and that portion of this property situated on the 
westerly of these blocks was worth $42,368.46. On 
November 10, 1893, a fire caused a loss of $30,982.02 
on that portion of their property situated on the west- 
erly block, but caused no damage or loss upon the 
property situated on the easterly block. At the time 



CONTRIBUTION OP COMPOUND INSURANCE. 13 

of this fire the plaintiffs in error held policies of in- 
surance to the amount of $40,000 on this entire prop- 
erty situated on both blocks and policies to the 
amount of $10,000 upon that portion of this property- 
situated on the westerly block. One of the latter, 
policies, for the amount of $2,500, was issued by the 
Sun Insurance Office, the defendant in error. This 
policy contains this provision: 

Pro Rata Contribution Clause. 

"This company shall not be liable under this policy 
for a greater proportion of any loss on the described 
property * * * than the amount hereby insured 
shall bear to the whole insurance, whether valid or 
not, or by solvent or insolvent insurers, covering 
such property." 

Decision. 

"Upon this statement of facts the court below 
held, in an action upon this policy, that both the 
$10,000 insurance upon the property on the westerly 
block only, and the entire $40,000 insurance upon all 
the property on both blocks, covered the property 
situated on the westerly block and described in this 
policy, and that the plaintiffs in error could recover 
only $2,500, fifty-thousandths of the amount of the 
loss on this policy, which is $1,549.10. Judgment was 
accordingly entered for that amount, and this writ of 
error was sued to reverse it (64 Fed. 194). The only 
error assigned is that only such a proportion of the 
$40,000 insurance upon the property upon both blocks 
as the value of the property upon the westerly block 
bore to the value of the property upon both blocks 
(that is to say, only 4,236,846/5,909,552 of $40,000), 
which is $28,677.95, covered the property upon the 
westerly block, within the true meaning of the clause 
of the policy in suit which we have quoted; that the 
whole insurance covering the property on this block 
was consequently only $38,677.95; and that the de- 
fendant in error is consequently liable for 250,000/ 
3,867,795, of $30,982.02, the total loss, which is $2,- 
002.56. Ingenious and persuasive arguments have 
been presented to sustain this assignment, but the 
unambiguous terms of the contract are fatal to them 
all. This contract is too plain to permit construction, 
too positive to allow evasion, and too clear to admit 
of doubt. It provides that this defendant in error 
shall not be liable for any greater proportion of the 
los§ on the property described in it than the amount 



14 THE APPORTIONMENT OF LOSS' AND 

insured by it shall bear to the whole insurance cov- 
ering the property it describes. It will not do to say 
that the policies for $40,000, which insured both this 
property on the westerly block and that upon the 
easterly block, did not cover to their full amount the 
property described in this policy. The whole includes 
all its parts, and that which covers the whole covers 
every part that constitutes the whole. The policy in 
suit requires the insured to state in his proofs of 
loss "all other insurance, whether valid or not, cover- 
ing any of said property." If, pursuant to this pro- 
vision, the plaintiffs in error had stated in their 
proofs of loss that the amount of their insurance on 
this property by virtue of these compound policies 
for $40,000 was only $28,677.95, it is plain that their 
statement would not have been true. If the loss upon 
the property on this westerly block had been $80,000, 
instead of $30,982.02, the insured could certainly have 
collected the full $40,000 on these compound policies. 
How, then, can it be said that the entire $40,000 of 
insurance furnished by these compound policies did 
not cover the property damaged? 

''Arguments and authorities have been urged upon 
our consideration in support of the proposition that 
a more just and equitable division of the loss be- 
tween the companies which issued the compound poli- 
cies covering the property upon both blocks, and 
those which issued the specific policies on the prop- 
erty upon the westerly block only, would be effected 
by treating the former as insuring the plaintiffs in 
error to the amount of $28,677.95 on the property on 
the westerly block, and to the amount of $11,322.05 
on the property on the easterly block. But that ques- 
tion is not presented by this record. According to 
the agreed statement of facts upon which this case 
was submitted, the $40,000 of insurance was not so 
placed. The question before us is not what contribu- 
tion each company which insured this property ought 
in equity to make to the payment of this loss, in the 
absence of express contracts fixing their liabilities, 
and we are compelled to decline to follow counsel 
into the consideration of that and cognate questions. 
It is not our province to make contracts for the 
parties to this suit, or to modify those which they 
have themselves deliberately made, because it ap- 
pears to us that they might have made those that 
would have been more equitable or more advantage- 
ous. They have made a contract themselves which 
fixes the amount of the liability of the defendant for 
this loss. This action is founded on that contract. 



CONTRIBUTION OF COMPOUND INSURANCE. 15 

and it is the sole measure of the defendant's liability. 
The only question here is whether or not the plain- 
tiffs in error may recover, under this policy, any 
greater proportion of the loss upon the property 
which it describes than that which the amount in-^ 
sured by it bears to the entire insurance covering 
that property. The policy expressly provides that 
they cannot, and that must close the discussion. 

"The result is that, under a clause in a policy of 
insurance which provides that the company shall 
not be liable for a greater proportion of any loss on 
the property described therein than that which the 
amount insured thereby shall bear to the whole in- 
surance covering such property: 

"First. Compound policies insuring the property 
described in such a policy, and other property, cover 
the property so described, to their full amount, in 
case of a loss upon the property described in the 
specific policy, and no less on the other property de- 
scribed in the compound policies. 

"Second. In such a case the company issuing the 
specific policy is liable for no greater proportion of 
the loss than that which the amount of such policy 
bears to the total amount of both the compound and 
specific policies covering the property it describes: 
Merrick vs. Insurance Company, 54 Pa. St. 277, 281, 
282, 284. The judgment below is affirmed with 
costs." 

Page Bros. vs. Sun Fire Office, 25 Ins. Law Jour- 
nal 865. 

The case of the Le Sure Lumber Company vs. Mu- 
tual Fire Insurance Company was decided April 9, 
1897. 

LE SURE LUMBER CO. DECISION. 

"On the 12th day of March, 1894, the defendant 
issued to the plaintiff a policy insuring it for the 
term of one year against loss or damage by fire, to 
the amount of $10,000 on its stock of lumber in cer- 
tain yards in the city of Dubuque. On the 9th day 
of June, in the same year, lumber to the value of 
$74,478.55, in two of the yards, was destroyed by fire. 
The total insurance on the lumber destroyed was 
$68,500. The verdict and judgment were for the full 
amount of the policy, with interest. 

"The next and last question we are required to de- 
termine involves the real controversy of the parties 
to this action, and relates to the proper interpreta- 
tion of a provision of the policy which is, in words, 
as follows: 'This company shall not be liable under 



16 THE APPORTIONMENT OF LOSS AND 

this policy for a greater proportion of any loss on 
the described property * * * than the amount 
hereby issued shall bear to the whole insurance, 
whether valid or not, or by solvent or insolvent in- 
surers, covering such property. * * * The policy 
in suit, as already stated, was for the sum of $10,- 
000, and covered all the lumber in three yards owned 
by the plaintiff, and referred to as the 'north yard,' 
'south yard' and 'yard north of Seventh street.' The 
entire insurance on the lumber in the three yards 
amounted to $115,000. Policies to the amount of $14,- 
500, called 'blanket policies,' including that in suit, 
covered all the lumber in the three yards. In addi- 
tion, there was specific insurance to the amount of 
$54,000 on the lumber in the north yard, and to the 
amount of $46,500 on the lumber in the south yard. 
The lumber in the yard last named was uninjured. 
The loss sustained in the other two yards w^s $74,- 
478.85, while the blanket and specific insurance upon 
the property lost was but $68,500. The defendant 
contends that its liability for the loss is as $10,000, 
the amount of its policy, is to $115,000, the total 
amount of the insurance on the three yards, or for 
2/23 of $74,478.85. It tendered to the plaintiff that 
amount ($6,476.42) with interest from the termina- 
tion of sixty days from the notice and proof of loss 
to the date of the tender. The plaintiff contends that 
this is not a case for the application of any rule of 
apportionment; that, as the value of the property 
lost was greater than the insurance upon it, the de- 
fendant is liable for the full amount of its policy and 
interest, and the district court so held. The policy 
was designed to secure the plaintiff against loss by 
fire in any or all of the yards to the full amount of 
the policy. It covered all of the property which was 
destroyed, and, if it is paid in full, it will not fully 
compensate the plaintiff for the loss sustained. In 
ascertaining the amount of insurance, for the pur- 
poses of an apportionment, it would be just, in the 
absence of a stipulation to the contrary, to consider 
only the insurance on the property injured or de- 
stroyed; and it will be presumed, in the absence of 
a showing to the contrary, that the parties to the 
contract intended to provide for a just result. The 
language they used does not necessarily mean that in 
case of loss the defendant should only be liable for 
such proportion of it as the amount it insured was 
of the total insurance on all the property described 
in its policy, whether the concurrent insurance was 
on all the property, or only a part of it. We think 



CONTRIBUTION OF COMPOUND INSURANCE. 17 



a permissible, and the correct, interpretation of the 
policy is that in case of a loss the defendant was not 
to be liable for a greater proportion of it than the 
amount of its policy bore to the total insurance on 
the property injured or destroyed. It is true, the 
words 'described property,' if not modified, refer to 
all of the property covered by the policy, and the 
phrase, 'covering such property' is equally compre- 
hensive; but considered in their relation to the word 
'loss,' and the purpose for which the policy was is- 
sued, we are of the opinion that they should be held 
to refer to property which should be injured or de- 
stroyed. See Erb vs. Insurance Company (Iowa), 69 
N. W. 263; Merrick vs. Insurance Company, 54 Pa. 
St. 277. There was nothing in the evidence in con- 
flict with the conclusion we reach. Hence the Dis- 
trict Court properly directed a verdict for the plain- 
tiff for the amount of the policy in suit, and interest. 
Its judgment is therefore affirmed." 

Le Sure Lumber Company vs. Mutual Fire Insur- 
ance Company, 70 Northwestern Reporter 761. 

There are two points which I have tried to present 
to you, that you should remember, and if you under- 
stand them you are well prepared to consider the 
rules used in disposing of these cases. 

First. It is the assured who is insured and not the 
property. 

Second. All of the insurance — unless there is an 
average clause, distribution form on the policy — 
covers for the purpose of paying the loss, only on 
the property which has been destroyed or damaged. 

The rule which you say the adjusters in your field 
seem to be using quite generally should not be used 
unless the compound policy is excess insurance. 



EXCESS INSURANCE. 

The rules which would make the specific insurance 
pay the loss without regard to the compound insur- 
ance, if the specific insurance was equal to, or greater 
than, the loss, should be, if used, a part of the com- 
pound policy, and it then makes the policy excess 
insurance. A policy is not excess insurance, unless 
it contains a condition which is a part of the con- 
tract, and usually reads as follows: "Not to be 
liable to contribution for loss thereon, until after all 
or any specific insurance on the property shall have 
been exhausted." 



18 THE APPORTIONMENT OP LOSS AND 

THE READING RULE. 

"Compound insurance shall contribute with specific 
in proportion as the value of the specific property 
bears to the value of all the property covered by the 
compound policy." 

As this rule is quite often used in apportioning the 
compound insurance, I will apply it to this case 
to get results, so that I can make plain to you my 
objections to its use. 

STATEMENT. 

Continental— On wheat, $2,500; loss, $3,000; sound 
value, $8,000. 

Continental — On corn, $3,000; loss, $4,000; sound 
value, $7,000. 

Continental— On oats, $2,000; loss, $8,000; sound 
value, $10,000. 

Aetna — On grain, $5,000. 

Home— On grain, $6,000. 

The sound value of the wheat is $8,000 ; of the 
corn, $7,000 and of the oats, $10,000, making a total 
valuation of $25,000. The Aetna and Home insur- 
ance is made to cover eight twenty-fifths on wheat, 
seven twenty-fifths on corn and ten twenty-fifths on 
oats. 

Apportionment and Contribution on WFieat. 

Continental insures $2,500 Pays $1,245.85 

Aetna insures 1,600 Pays 797.34 

Home insures 1,920 Pays 956.81 



Total loss paid $3,000.00 

Apportionment and Contribution on Corn. 

Continental insures $3,000 Pays $1,973.68 

Aetna insures 1,400 Pays 921.06 

Home Insures 1,680 Pays 1,105.26 

Total loss paid $4,000.00 

Apportionment and Contribution on Oats. 

Continental insures $2,000 Pays $2,000.00 

Aetna insures 2,000 Pays 2,000.00 

Home insures 2,400 Pays 2,400.00 

Total loss paid $6,400.00 



CONTRIBUTION OF COMPOUND INSURANCE. 19 

The assured is paid his full loss on wheat and 
corn, but with an insurance of $18,500 and a loss of 
$15,000, lacks $1,600 of receiving his full loss on 
oats. As the application of the Reading Rule in this 
case fails to pay the assured his full loss, and the 
companies make a salvage, some other rule would 
have to be applied because the assured must be paid 
his full loss. 

The Reading Rule, which I have applied to your 
case, is made to be used after a loss, to apportion 
the compound insurance and thereby make it specific, 
and it produces the same results as the distribution 
form of the average clause, which is intended to be 
put on the policy when it is issued, and to be a part 
of the contract from its date. 

AVERAGE CLAUSE— DISTRIBUTION FORM. 

It is understood and agreed that the amount in- 
sured by this policy shall attach, in each of the above- 
named premises, in that proportion of the amount 
hereby insured, that the value of property covered 
by this policy, contained in each of said places, shall 
bear to the value of such property contained in all 
of above-named premises. 

There is a case, lately decided by the Supreme 
Court of Vermont, where the Reading Rule was used. 

Decision. 

"The policy issued by the defendant contained this 
provision: 'This company shall not be liable under 
this policy for a greater proportion of any loss on 
the described property than the amount hereby in- 
sured shall bear to the whole Insurance covering 
such property.' 

"The plaintiff held a fire insurance policy in the 
defendant company, covering specific sums on three 
items, viz.: $562.50 on item a, $612.50 on item b, 
$325 on item c. He held in the Home Company a 
like policy for $262.50 on item a, $375 on item b, and 
$112.50 on item c. He held policies in the Lloyds 
Association for $12,700, called 'blanket policies,' in- 
suring the same property as one item. The property 
was totally destroyed, the loss being the full value, 
and was less than the total amount of insurance. 
The loss on the respective items was as follows: 
$3,491.48 on item a, $6,230.37 on item b, and $2,041.70 
on item c. The question presented is, what propor- 
tion of the loss shall the respective companies pay? 



20 THE APPORTIONMENT OF LOSS AND 

The rule which must be applied to determine this is 
a legal, just and equitable one, and is found in the 
policies. It is that each company shall pay such 
proportion of the loss as the sum insured by it bears 
to the total insurance. The difficulty in adjusting 
the proportion which each company shall pay arises 
from the fact that some of the policies are specific 
and others blanket. As, by the terms of the specific 
policies, they cannot be converted into blanket poli- 
cies, it necessarily follows that the only way in 
which the loss can be adjusted is to turn the blanket 
policies into specific ones, i. e., determine how much 
of the full amount of a blanket policy shall be appor- 
tioned to each of the three respective items, accord- 
ing to their respective values. The value of the 
items, as shown by the loss, is as follows: Item a, 
$3,491.48; item b, $6,230.37; item c, $2,014.70, equalling 
$11,736.55. Apportioning the amount of the blanket 
policies — $12,700 — upon the amount of the loss by 
using the proportion as the value of the whole prop- 
erty is to the whole blanket insurance, so is the 
value of each item to the insurance on each item, 
we find the insurance on each item to be, item a, 
$8,778.09: item b, $6,741.82; item c, $2,180.09, equal- 
ling $12,700, and the total amount of the insurance 
upon each item to be, item a, $4,603.09; item b, 
$7,729.32; item c, $2,617.59. As each company pays 
in the ratio that the amount of its policy bears to the 
total amount of insurance, the defendant is liable in 
respect to item a, $426.66; item b, $493.73; item c, 
$250.14, equalling $1,170.53— the amount for which 
judgment was entered below. The judgment is cor- 
rect and is affirmed." 

Chandler vs. Insurance Company of North America, 
41 Atlantic Reporter 502. 

After reading this case, we know the court applied 
the Reading Rule, to apportion the compound insur- 
ance; but we cannot determine from this decision, 
and we have no intimation, what the court would 
have done if the value and loss of item A had ex- 
ceeded $4,603.09, or if the value and loss of either 
one of the other items had been greater than .the 
total specific insurance as fixed by the court. 

In this case the property covered by the compound 
insurance was all destroyed, and it was worth less 
than the total insurance, therefore the loss and value 
were the same. If the court had used the word "loss'* 
in place of "value," the rule used would have been 
the "Griswold," and not the "Reading." 



CONTRIBUTION OP COMPOUND INSURANCE. 21 

When there are one or more items of property, 
which are covered by specific insurance, on which 
there is a loss, the application of the Reading Rule 
usually carries so much of the compound insurance 
to the items of property covered by specific insur- 
ance, and not destroyed or damaged, that the as- 
sured, though having more insurance than loss, is 
not paid in full for his loss. 

There is no question but that if the compound and 
specific insurance equals or exceeds the amount of 
loss to the property covered by it, the assured's loss 
must be paid in full, regardless of the result which 
any particular rule of apportionment may produce. 

If the w^ords in the Reading Rule "covered by the 
compound policy" mean only the property destroyed 
or damaged, then it differs from the average clause. 
I am unable to find any case where the court has 
applied to this rule any such construction, neither 
have I met any adjuster who advocated this rule, who 
gave it any such construction. I therefore feel justi- 
fied in making the statement that to adjust a loss 
and apply the Reading Rule is to make, subsequent 
to a fire, a new contract and one, if it is to be rec- 
ognized, should have been made when the policy was 
written by putting the average clause on the policy. 

This rule is also objectionable because it is not 
susceptible of general application. As, for instance, 
in the case of Angelrodt & Barth vs. Delaware Mu- 
tual Insurance Company, 31 Mo. 593, the court ap- 
plied this rule, and as it failed to fully indemnify the 
assured, and gave the insurance company a salvage, 
when the loss exceeded the total insurance, it was 
rejected and another rule applied. 

It is in conflict with the rule made by the courts 
in the following cases: 

Cromie vs. Kentucky and Louisville Insurance Com- 
pany, 15 B. Monroe Ky. 432. 

Angelrodt & Barth vs. Delaware Mutual Insurance 
Company, 31 Mo. 539. 

Page Bros. vs. Sun Fire Office, 25 Ins. Law Journal. 
8G5. 

Le Sure Lumber Company vs. Mutual Fire Insur- 
ance Company, 70 Northwestern Reporter 61. 

In the case of Page Bros. vs. Sun Fire Office, 25 
Ins. Law Journal. 865, the assured asked to have the 
compound insurance made specific on the basis of the 
sound value, or to have the Reading Rule applied. 
The court refused to apportion the insurance in ac- 
cordance with the Reading Rule, and discussed the 
question as follows: 



22 THE APPORTIONMENT OF LOSS AND 

"The only error assigned is that only such a pro- 
portion of the $40,000 insurance upon the property 
upon both blocks as the value of the property upon 
the westerly block bore to the value of the property 
upon both blocks (that is to say, only 4,236,846/5,909,- 
552 of $40,000), which is $28,677.95, covered the prop- 
erty upon the westerly block, within the true meaning 
of the clause of the policy in suit which we have 
quoted; that the whole insurance covering the prop- 
erty on this block was consequently only $38,677.95; 
and that the defendant in error is consequently lia- 
ble for 250,000/3,867,795 of $30,982.02, the total loss, 
which is $2,002.56. Ingenious and persuasive argu- 
ments have been presented to sustain this assignment, 
but the ambiguous terpas of the contract are fatal to 
them all. This contract is too plain to permit con- 
struction, too positive to allow evasion, and too clear 
to admit of doubt. It provides that this defendant 
in error shall not be liable for any greater proportion 
of the loss on the property described in it than the 
amount insured by it shall bear to the whole insur- 
ance covering the property it describes. It will not 
do to say that the policies for $40,000, which insured 
both this property on the westerly block and that upon 
the easterly block, did not cover to their full amount 
the property described in this policy. The whole in- 
cludes all its parts, and that which covers the whole 
covers every part that constitutes the whole. 

"The result is that, under a clause in a policy of 
insurance which provides that the company shall not 
be liable for a greater proportion of any loss on the 
property described therein than that which the 
amount insured thereby shall bear to the whole in- 
surance covering such property: 

''First. Compound policies insuring the property 
described in such a policy, and other property, cover 
the property so described to their full amount, in case 
of a loss upon the property described in the specific 
policy, and no loss on the other property described in 
the compound policies. 

"Second. In such a case the company issuing the 
specific policy is liable for no greater proportion of 
the loss than that which the amount of such policy 
bears to the total amount of both the compound and 
specific policies covering the property it describes.'' 

In the case of The Le Sure Lumber Company vs. 
Mutual Fire Insurance Company, 70 Northwestern 
Reporter 761, the insurance company did not ask to 
have the Reading Rule applied, but it did request 
that its liability be limited to such a proportion of 



CONTRIBUTION OP COMPOUND INSURANCE. 23 

the loss, as its policy bore to all the insurance on the 
lumber in the two yards burned and the one not 
burned. The court decided that all of the insurance 
covered for the purpose of paying the loss on the prop- 
erty injured or destroyed, and this decision is fatal 
to the Reading Rule. The court, in deciding the case, 
says : 

"On the 12th day of March, 1894, the defendant is- 
sued to the plaintiff a policy insuring it for the term 
of one year against loss or damage by fire, to the 
amount of $10,000 on its stock of lumber in the city 
of Dubuque. On the 9th day of June, in the same 
year, lumber to the value of $74,478.55, in two of the 
yards, was destroyed by fire. The total insurance on 
the lumber destroyed was $68,500. The verdict and 
judgment were for the full amount of the policy, with 
interest. 

"The next and last question we are required to de- 
termine involves the real controversy of the parties 
to this action, and relates to the proper interpretation 
of a provision of the policy which is, in words, as 
follows: 'This company shall not be liable under 
this policy for a greater proportion of. any loss on the 
described property * * * than the amount hereby 
insured shall bear to the whole insurance, whether 
valid or not, or by solvent or insolvent insurers, coy- • 
ering such property * * *.' The policy in suit, as 
already stated, was for the sum of $10,000, and cov- 
ered all the lumber in three yards owned by the 
plaintiff, and referred to as the 'north yard,' 'souths 
yard,' and 'yard north of Seventh street.' The entire^ 
insurance on the lumber in the three yards amounted' 
to $115,000. Policies to the amount of $14,500, called' 
'blanket policies,' including that in suit, covered all' 
the lumber in the three yards. In addition, there was; 
specific insurance to the amount of $54,000 on the- 
lumber in the north yard, and to the amount of $46y- 
500 on the lumber in the south yard. The lumber in 
the yard last named was uninjured. The loss sus- 
tained in the other two yards was $74,478.85, while 
the blanket and specific insurance upon the property 
lost was but $68,500. The defendant contends that 
its liability for the loss is as $10,000, the amount of 
its policy, is to $115,000, the total amount of the in- 
surance on the three yards, or for 2/23 of $74,478.85. 

"The policy was designed to secure the plaintiff 
against loss by fire in any or all of the yards to the 
full amount of the policy. It covered all of the prop- 
erty which was destroyed, and, if it is paid in full, 
it will not fully compensate the plaintiff for the loss; 



24 THE APPORTIONMENT OF LOSS AND 

sustained. In ascertaining the amount of insurance 
for the purpose of apportionment, it would be just 
in the absence of a stipulation to the contrary, to 
consider only the insurance on the property injured 
or destroyed; and it will be presumed in the absence 
of a showing to the contrary, that the parties to the 
contract intended to provide for a just result. The 
language they used does not necessarily mean that in 
case of loss the defendant should only he liable for 
such proportion of it as the amount it insured was of 
the total insurance on all the property described in 
its policy, whether the concurrent insurance was on 
all of the property, or only a part of it. We think 
a permissible, and the correct, interpretation of the 
policy is that in case of a loss the defendant was not 
to be liable for a greater proportion of it than the 
amount of its policy bore to the total insurance on 
the property injured or destroyed. It is true, the 
words 'described property,' if not modified, refer to 
all of the property covered hy the policy, and the 
phrase 'covering such property' is equally comprehen- 
sive; hut considered in their relation to the word 
'loss,' and the purpose for which the policy was issued, 
we are of the opinion that they should he held to refer 
to property which shoiild he injured or destroyed." . 

There are two rules which are used frequently, but 
they have not been approved by the courts, except 
in one case, so far as I have been able to learn. In 
the case of Sherman vs. Madison Mutual Insurance 
Company, 39 Wis. 104, which was decided in 1876, 
the rules I refer to were used in the adjustment of a 
claim for loss on live stock. I will refer to this case 
later, and give you a copy of it. These rules are so 
■easily applied, so frequently used, so palpably wrong, 
and so clear a violation of the conditions of the policy, 
that it would be improper to pass them without con- 
sideration. 

One of them is very generally used, and I will apply 
it first: 

HARTFORD RULE. 

The compound insurance contributes from its full 
amount with the specific, to pay the loss on the first 
item in the general form on which there is a loss. 
The remainder of the compound insurance, after de- 
ducting amount of loss paid, contributes with the 
specific insurance on the next item in the general 
form on which there is a loss. This plan to be fol- 
lowed until the whole loss is paid or the compound 
insurance is exhausted. 



CONTRIBUTION OP COMPOUND INSURANCE. 25 

I give this rule the name of Hartford Rule, because 
the only man whom I ever heard advocate its use 
was a representative of the Hartford Fire Insurance 
Company. 

I will apply the above rule to this case that you 
may clearly understand it. 

STATEMENT. 

Continental— On wheat, $2,500; loss, $3,000. 
Continental — On corn, $3,000; loss, $4,000. 
Continental— On oats, $2,000; loss, $8,000. 
Aetna— On grain, $5,000. 
Home— On grain, $6,000. 

Apportionment and Contribution on Wheat. 

Continental insures $2,500 Pays $555.56 

Aetna insures 5,000 Pays 1,111.11 

Home insures 6,000 Pays 1,333.33 

Total loss paid $3,000.00 

Apportionment and Contribution on Corn. 

Continental insures $3,000.00 Pays $1,038.47 

Aetna insures 3,888.89 Pays 1,346.15 

Home insures 4,666.67 Pays 1,615.38 

Total loss paid $4,000.00 

Apportionment and Contribution on Oats. 

Continental insures $2,000.00 Pays $2,000.00 

Aetna insures 2,542.74 Pays 2,542.74 

Home insures 3,051.29 Pays 3,051.29 

Total loss paid $7,594.03 

The results, as you will see, are that we exhaust 
the compound insurance and fail to pay the full loss. 
The assured, though he has more insurance than loss, 
loses by the application of this rule $405.97. 

The apportionment made for the Aetna by the ap- 
plication of this rule was: 

On wheat $5,000.00 

On corn 3,888.89 

On oats..' 2,542.74 

Total $11,431.63 



26 THE APPORTIONMENT OP LOSS AND 

The Home is required to contribute from an appor- 
tionment as follows: 

On wheat $6,000.00 

On corn 4,666.67 

On oats 3,051.29 

Total $13,717.96 

The results are that the Aetna, with a policy of 
$5,000, is made to contribute from $11,431.63, and the 
Home contributes from $13,717.96, when the amount 
of the policy is only $6,000. 

CHICAGO RULE. 

The compound insurance contributes from its full 
amount with the specific to pay the loss on the item 
covered by specific insurance on which there is the 
largest loss. The remainder of compound insurance 
after deducting amount of loss paid contributes with 
the specific insurance on the item having the second 
largest loss. This plan to be followed until the 
whole loss is paid or the compound insurance is ex- 
hausted. 

I call this the Chicago Rule because it seems to be 
the favorite rule of many of the Chicago adjusters, 
and its use in the cases of compound and specific In- 
surance is advocated by them. 

This rule differs a very little from the one just ap- 
plied, and is more frequently used. I will apportion 
the insurance according to it, to demonstrate that it 
is wrong. 

STATEMENT. 

Continental— On wheat, $2,500; loss, $3,000. 

Continental— On corn, $3,000; loss, $4,000. 

Continental— On ots, $2,000; loss, $8,000. 

Aetna— On grain, $5,000. 

Home— On grain, $6,000. 

Apportionment and Contribution on Oats. 

Continental insures $2,000 Pays $1,230.77 

Aetna insures 5,000 Pays 3,076.92 

Home insures 6,000 Pays 3,692.31 

Total loss paid $8,000.00 

Apportionment and Contribution on Corn. 

Continental insures $3,000.00 Pays $1,659.58 

Aetna insures 1,923.08 Pays . 1,063.84 

Home insures 2,307.69 Pays 1,276.58 



Total loss paid $4,000.00 



CONTRIBUTION OF COMPOUND INSURANCE. 27 

Apportionment and Contribution on Wiieat. 

Continental insures $2,500.00 Pays $1,708.29 

Aetna insures 859.24 Pays 587.13 

Home insures 1,031.11 Pays 704.58 

Total loss paid .$3,000.00 

From the application of this rule, the assured is 
paid the full amount of his loss and all the compa- 
nies have a salvage. 

The Aetna has to contribute from an apportion- 
ment as follows: 

On oats $5,000.00 

On corn 1,923.08 

On wheat 859.24 

Total $7,782.32 

The application of this rule makes the following 
apportionment for the Home: 

On oats $6,000.00 

On corn 2,307.69 

On wheat 1,031.11 

Total $9,338.80 

This rule produces more equitable results than the 
other, because a larger part of the compound insur- 
ance is paid on the loss on oats. 

The Aetna, with a $5,000 policy, contributes from 
$7,782.32, and the Home contributes from $9,338.80, 
with a $6,000 policy. 

These two rules for the apportionments of com- 
pound policies should never be used. 

The limit of liability of the company is fixed by 
the terms of the policy. 

"This company shall not be liable under this policy 
for a greater proportion of any loss on the described 
property * * * than the amount hereby insured 
shall bear to the whole insurance * * * covering 
such property.'* 

Any rule which requires a company to contribute 
from one cent more than the full amount of insur- 
ance, on the described property named in the policy, 
or the amount made specific by the average clause, 
distribution form, is clearly and positively in confiict 
with the conditions of the policy. 



28 THE APPORTIONMENT OF LOSS AND 

APPORTIONMENT AND CONTRIBUTION OF NON- 
CONCURRENT INSURANCE. 

The rule whicli I have named the ''Chicago Rule" 
requires the compound insurance to contribute from 
its full amount with the specific insurance, on the 
item specifically insured on which there is the larg- 
est amount of loss, and then the remainder of the 
compound insurance, after deducting the amount of 
loss it pays under the first apportionment, contrib- 
utes with the specific insurance on the item specific- 
ally insured, which has suffered the second largest 
amount of loss. This plan to be repeated until the 
losses are paid or the compound insurance is ex- 
hausted. 

The Rule Upheld. 

I have a record now of four cases where the courts 
of last resort in as many different States have up- 
held the above rule, and in one case, the court, in 
approving the rule, entered into an elaborate dis- 
cussion of some of the points involved. This opin- 
ion, which was rendered by the Supreme Court of 
Connecticut, will be given in full herein. 

The attention of every person who is interested . 
in the subject of apportionment and contribution of 
non-concurrent insurance, is particularly called to 
this Connecticut decision, because it furnishes a ba- 
sis for a careful and intelligent study of the applica- 
tion of this rule. 1 would like to suggest to each per- 
son, who reads this communication, who occupies a 
position with a company which makes him in any 
degree responsible for the expense of adjusting 
claims, to keep in mind the fact that it is very ex- 
pensive to carry a case through the Supreme Court 
of a State, even if it goes there on an agreed state- 
ment of facts. Why, therefore, do not all of the 
insurance companies east of the Pacific Coast field, 
do as the managers on the Pacific Coast have done, 
and that is to adopt some rule which is equitable, 
and which to the least extent violates the contracts, 
and which is susceptible of the most general appli- 
cation, and thereby keep all of these cases out of the 
courts? If every adjuster would go to a loss with 
instructions to use the same rule in all cases of non- 
concurrent insurance, there would be no delay in the 
adjustment and no law suits resulting therefrom. 

The first case in which this rule was to any extent 
recognized was decided in 1876 by the Supreme Court 
of Wisconsin. This was the case of Sherman vs. 



CONTRIBUTION OP COMPOUND INSURANCE. 2» 



Madison Mutual Insurance Company, 39 Wis. 104. 
In this case the claim was for the loss of several 
head of cattle, and' the policies involved in the claim 
contained different limits of loss liability. In decid- 
ing the question as to the amount of loss, each com- 
pany should pay, the court applied this rule, but it 
was done in such a way that the Supreme Court of 
Connecticut, in commenting on the opinion, says: 
"* * * this doctrine receives at least implied sanc- 
tion." 

The next case where this rule was applied is that 
of Herr vs. Greenwich Insurance Company, 20 Pa. 
Superior Court 169, and this decision was made 
April 21st, 1902. There was no discussion by the 
court in rendering its opinion in this case, of any 
of the points involved, therefore the decision is val- 
uable only as showing that the Superior Court of 
Pennsylvania has applied this rule and thereby 
approved it. 

Another case where this rule was applied was that 
of Grollimund & Germania Fire Ins.. Co., decided 
August 22nd, 1912, by the New York Court of Errors 
and Appeals. 

The Connecticut Case. 

The third case, and the only one where this rule 
has been approved, and at the same time the ques- 
tions involved have been discussed by the court in 
its opinion, is that of Schmaelzle vs. London & Lan- 
cashire Ins. Co., decided January 7th, 1903, by the 
Supreme Court of Errors of Connecticut, and the 
opinion will be found in 53 Atlantic Reporter 841. 
The full opinion is given herein and it is as follows: 

"The plaintiff is the owner of premises upon which 
stood a brewery and shed. In the brewery were 
machinery and stock. Upon the buildings, machinery 
and stock the plaintiff carried in some thirty-four 
companies insurance against fire aggregating $60,000 
in amount. These policies were all of the standard 
form, and contained the following provisions: *This 
company shall not be liable under this policy for a 
greater proportion of any loss on the described prop- 
erty * * * than the amount hereby insured shall 
bear to the whole insurance, whether valid or not, 
or by solvent or insolvent companies, covering such 
property * * *.' Thirty-one of the policies, covering 
insurance for $55,000, were of the kind known as 
'blanket' or ^compound* policies; that is, they insured 
said buildings, machinery and stock as a whole, and 



30 THE APPORTIONMENT OF LOSS AND 

. • . 

without distributing the amount of the insurance 
among the several items. The remaining policies, 
containing insurance for $5,000, were of the kind 
known as 'specific'; that is, the amount insured 
hereby was distributed among the several items of 
property, a specific amount to each item. Each of 
these specific policies covered in the whole precisely 
the same property as did the compound insurance, 
but distributively. This distribution was uniform 
among the specific policies, and was among four sep- 
arate items, to-wit, the main or brewery building, 
stock, machinery and shed, as follows: $1,634.88 on 
the brewery, $1,839.21 on the stock, $1,498.64 on the 
machinery, and $27.24 on the shed. A fire damaged 
the brewery, stock and machinery. The sound value 
of the property insured was $59,982, divided as fol- 
lows: Brewery, $20,586; stock, $11,085; machinery, 
$28,111, and shed, $200. The loss by the fire was 
mutually adjusted at $42,953, distributed as follows: 
Brewery, $15,115; stock, $11,085; machinery, $16,- 
758, and shed, 0. 

*'It is conceded that the assured is entitled to re- 
ceive- from the defendants the amount of his loss 
above stated. The only question in the case is one 
between the several defendants as to the sum which 
each should pay. Between the blanket insurers there 
is no dispute, and between the specific there is none. 
The contention is between the two classes of insur- 
ers, and is as to the method to be employed in the 
apportionment of the loss in view of the provisions 
as to prorating which appear alike in all the poli- 
cies and which have been quoted. It is clear that 
the compound and the specific insurance must be 
brought together in prorating. This necessarily in- 
volves an adjustment by separate items, and the 
application in some way of the blanket insurance 
to each item covered by specific insurance. The 
question is as to how this shall be done. The claim 
of the blanket insurers is that their policies should, 
for the purpose of the distribution of the loss, be 
converted into specific ones; specific amounts under 
the policies being set out to each item upon which 
there is specific insurance, so that, for the purpose 
of determining the amount that any blanket policy 
shall contribute towards any item of loss upon which 
there is specific insurance the amount of the blanket 
policy's insurance upon such item and the total 
amount of insurance thereon shall be computed 
upon the basis thus ascertained. The methods sug- 
gested for making this conversion from compound 



CONTRIBUTION OF COMPOUND INSURANCE. 31 

to specific are two, both of which are claimed as 
having the approval of authority and experience. 
One method is to distribute the amount of the blan- 
ket policy over the property insured by it so that 
the items bearing specific insurance shall be credited 
with insurance to such a proportionate amount of the 
whole as the sound value of the specific item bears 
to the sound value of the whole. The other is to 
make this conversion upon the basis of the respect- 
ive losses upon the property insured. The specific 
insurers, upon the other hand, contend that there 
should be no such conversion; but that in adjusting 
each item of loss the total amount of insurance 
thereon and the amount insured by each blanket 
policy be determined by including the entire amount 
of the compound insurance which has not been pre- 
viously exhausted in adjusting some other item. The 
widely differing results to which the two claims 
might lead are apparent. In making these claims 
and others which are incidental to them, all the 
parties concede that, whatever general rule of ap- 
portionment of loss may be adopted, it must, in so 
far as it is not directly prescribed by the contract, 
yield in case of need to the interests of the assured. 
The first requisite of any method of apportionment 
sought to be applied must be the assured's protec- 
tion to the full extent of his rights under his poli- 
cies. Any method which, in a given case, fails to 
afford him the full measure of his just indemnity, 
must give place to another which will. In the pres- 
ent case the plaintiff has no concern as to which of 
the suggested methods be adopted in distributing 
his loss among his insurers. The interests of the 
latter are alone involved. The whole question arises 
out of the application to the facts of the case of the 
provisions of the prorating clause in the policies. 
Each insurer has not entered into an unqualified 
obligation to indemnify the assured to the extent of 
his loss, or to the extent of his loss limited to the 
amount of the policy. It has made a contract which 
gives it, as against the assured, a benefit arising 
from co-insurance. It stipulates that its liability 
shall be limited in amount dependent upon the exist- 
ence and amount of such co-insurance. The policy 
expressly states how its liability shall be deter- 
mined. The question, therefore, becomes one of 
contract construction. It is not one of equitable 
determination in the absence of an agreement, as 
was the case in certain of the adjudicated cases. 
We are not called upon to adjust the equities be- 



32 THE APPORTIONMENT OP LOSS AND 

tween co-insurers, one liaving paid more than his 
fair share of loss. We are not dealing with the doc- 
trine of subrogation. The parties have recorded 
their agreement, and we have only to determine its 
meaning, and enforce it. 

What Amount Attached to Each Item? 

"The policy provision, to restate its pertinent por- 
tion, is: *This company shall not be liable under 
this policy for a greater portion of any loss of the 
described property * * * than the amount hereby 
insured shall bear to the whole insurance.' It is 
thus provided that the mode to be employed in de- 
termining the extent of liability is purely a mathe- 
matical one, involving the stating of a problem in 
simple proportion. The three known terms of the 
proportion, from which the fourth, to-wit, the amount 
of the liability under the given .policy, is to be 
deduced, are stated to be the whole insurance, the 
amount insured under the policy, and the loss. The 
loss is in this case an ascertained sum. In any it is 
a determinable one. Where the given policy is a 
specific one, the second term is also a definite one, 
and only the- first remains open to question. If the 
given policy is a blanket one, then both the first 
and second terms are subject to dispute. An answer 
to a single question, however, resolves all. That 
question, which thus stands out as the controlling 
one in the situation, is thus seen to be this: *By 
the term of a blanket policy, what amount of insur- 
ance attached to each item embraced within the 
insurance?' The answer to this question is not a 
hidden one. The characteristic features of a blanket 
policy are well understood. Its very essence is that 
it covers to the full amount every item of property 
described in it. If the loss upon one portion or item 
of the property Exhausts the full amount of the pol- 
icy, the whole insurance must be paid. There can 
be no apportionment of it. In the absence of a 
prorating clause, one blanket insurer among many 
insurers, whether blanket or specific, may be sued, 
and he must pay the whole loss, if it is not in excess 
of his policy. His payment will give him certain 
equitable rights of contribution as against his co- 
insurers, but his legal obligation to pay the assured 
can not be questioned. The contract holds him to that. 
These principles are elementary. Joyce, Ins. 2492; 
May, Ins. (3d Ed.) 13; Ostrander, Ins. 204. It is in 
such particulars as these that blanket policies differ 



CONTRIBUTION OF COMPOUND INSURANCE. 33 



from specifics. The difference is one which inheres 
in the nature of the two contracts, and has its recog- 
nition in the accepted advantages of a blanket policy 
to the assured and its disadvantages to the insurer, 
and in the more exacting terms which are customa- 
rily demanded for its issue. The answer to our 
question must, therefore, be that the whole amount 
insured by a blanket policy attaches, and invariably 
attaches to each item thereunder. The blanket in- 
surers concede the peculiar character which in gen- 
eral inheres in such policies, but they say that for 
the purpose of the contributing clause they are enti- 
tled to an apportionment of their insurance in cases 
of adjustment in connection with specific insurers. 
We fail to see anything in this claim but an appeal 
from the contract made to assume principles of 
fairness and equity. It certainly does not rest upon 
any logical foundation. The palpable answer to it 
is found in the fact that the question is one of legal 
construction of an express contract obligation, and 
not of equitable determination. The parties having 
made a contract, the courts are powerless to change 
it. What the blanket insurers ask is, in effect, that 
there be read into .their policies a provision which 
is not there. Had the parties wished, this provision 
might easily have been incorporated. It was not, 
and the contract must stand as made. 

Specific or Blanket. 

"We have thus far discussed the question at issue 
as one of reason and not of authority. The analo- 
gous cases are few. They are, however, to be found. 
Concerning them it has to be confessed that the 
majority which have arisen under the operation of 
the prorating clause have adopted the compound in- 
surer's view. It is noticeable, also, that of these all, 
save a few, state the proposition as a dictum, or 
simply its correctness without argument or reason 
therefor. Such are the cases of Blake vs. Insurance 
Co., 12 Gray 272; Cromie vs. Insurance Co., 15 B. 
Mon. 432; Le Sure Lumber Co. vs. Mutual Fire Ins. 
Co., 101 Iowa 514, 70 N. W. 761. In Chandler vs! 
Insurance Co., 70 Vt. 562. 41 Atl. 502, the court at- 
tempts to give a reason for this position. It is con- 
tained in these words only; *As by their terms the 
specific policies can not be converted into blanket 
policies, it necessarily follows that the only way in 
which the loss can be adjusted is to turn the blanket 
policies into specific ones.' This is a clear case of a 



34 THE APPORTIONMENT OP LOSS AND 

non sequitur. The syllogism involved assumes for 
its major premise the existence of a necessity which 
does not exist. It is practically as simple to adjust 
a loss by not apportioning as by apportioning the 
blanket insurance. In Ogden vs. Insurance Co., 50 
N. Y. 388, Am. Rep. 492, the court finds its rea- 
son in the fact that it was unreasonable to assume 
that any of the parcels included in the blanket insur- 
ance were over-insured where the total insurance 
was not in excess of the total value. What method 
of adjusting this argument would have led the court 
to adopt had concurrent compound policies for dif- 
ferent gross sums been involved, was not stated. 
An assumption of that situation sufficiently discloses 
the fallacy of the case. Of all these cases it is to be 
observed that none attempt to lay down a rule of 
universal, or even general application. They treat 
each case by itself, conceding that in the next the 
rule might not apply. The trouble has been that in 
ignoring the contract all has been left to arbitrary 
and uncertain action, which fairness and equity in 
the given cases seems to indicate. In Page vs. In- 
surance Co., 20 C. C. A. 397, 74 Fed. 203, 33 L. R. 
A. 249, the other side of this question is distinctly 
avowed. The decision is put squarely upon the 
terms of the contract. The argument, although brief, 
is substantially that which had guided us. The 
position assumed in the case last cited seemed to 
have the approval of Joyce in his latest work. Joyce, 
Ins. 3457. In Sherman vs. Insurance Co., 39 Wis. 
104, also, this doctrine receives at least implied 
sanction. 

ITEMS MUST BE TAKEN IN SOME ORDER. 

"One other point remains to be considered. As 
the existence of the specific policies compels the 
adjustment of the loss by items, these items must 
be taken up in some order. This order might very 
materially affect the result, both as respects the 
companies and the insured, since that portion of a 
blanket policy which is exhausted in the settlement 
upon the first item no longer remains to be applied 
to the second item, and so on through the list. This 
matter of order is one upon which the policies in 
suit and policies ordinarily are silent. Evidently 
nothing remains but some arbitrary selection, in 
which the consideration influencing a choice should 
be what, on the whole, under the conditions, best 
satisfies the ends of fairness and justice as between 



CONTRIBUTION OF COMPOUND INSURANCE. 35 

the companies, the assured being given his rightful 
amount of indemnity. A little study of the peculiar 
situations which may arise may convince one that 
no rule of universal application can be safely laid 
down. Whether one suggests the order of the great- 
est losses, or of the least losses, or the order of the 
enumeration in the special insurance, or an order to 
be determined by lot — two at least of which methods 
appear to have been used — or some other order, he 
will quite likely be met with an assumed situation in 
which his system seems to fail to fully accomplish 
equity and justice. Fortunately we have no need to 
search for a universal rule. In the present case it 
matters not to the assured, and little to the insurer, 
what order of adjustment is adopted. The order 
first indicated, to-wit, that of the greatest losses, is 
one which, as a general rule, has some considera- 
tions in its favor. In this case it works out substan- 
tial equity and justice to all concerned. We there- 
fore select it for the purpose of this case as on the 
whole the best. 

"The Superior Court is advised that in the adjust- 
ment of the plaintiff's loss and its apportionment 
among the defendant companies the items upon 
which there was loss be taken up in the order of the 
greatest losses, the whole property being divided for 
this purpose into items corresponding to those des- 
ignated in the specific insurance; that in computing 
the total amount of insurance upon the first item the 
full amount of the blanket insurance be applied, and 
that the full amount of any given blanket policy be 
regarded as the amount of insurance upon the item 
under such policy; that with respect to the second 
and subsequent items the same rule be adopted, 
save that the total amount of insurance thereon be 
reduced by the amount of blanket insurance already 
exhausted in the settlement upon former items, and 
the amount of insurance under any given blanket 
policy likewise reduced by the amount thereof used 
in prior adjustments, and that judgment be rendered 
against the several defendants according to the re- 
sults thus obtained. The other judges concurred." 

Apportionment and Contribution in Foregoing Case. 
The above opinion is very important and deserves 
the careful attention of any person interested in 
this subject, and as it will be more easily understood 
if the statement of insurance and loss, and the ap- 
portionment and contribution are shown in detail, 
I will give them, as follows: 



36 THE APPORTIONMENT OF LOSS AND 

Statement. 

Specific insurance: 

On brewery $1,634.88 Loss, $15,115.00 

On stock 1,839.21 Loss, 11,085.00 

On machinery 1,498.64 Loss, 16,753.00 

On shed 27.27 No loss. 

Compound insurance: 
On brewery, stock, machin- 
ery, shed $55,000.00 

Totals, insurance $60,000.00 Loss, $42,953.00 

Under the rule made by the court in this case the 
loss on machinery must be paid first, because it is 
larger than that on any other item. 

Apportionment and Contribution on Machinery. 

Compound insurance $55,000.00 Pays $16,308.62 

Specific insurance 1,498.64 Pays 444.38 

Total loss paid $16,753.00 

The compound insurance pays under this appor- 
tionment $16,308.62 on machinery, which amount de- 
ducted from $55,000, the total compound insurance, 
leaves $38,691.38 to contribute, with $1,634.88, the 
specific insurance on brewery, to pay a loss of $15,- 
115.00, which is the second largest amount of loss. 

Apportionment and Contribution on Brewery. 

Compound insurance $38,691.38 Pays $14,502.21 

Specific insurance 1,634.88 Pays 612.79 

Total loss paid $15,115.00 

After paying the loss on brewery the compound 
insurance has left $24,189.17 to contribute, with $1,- 
839.21, the specific insurance on stock, to pay a loss 
of $11,085.00. 

Apportionment and Contribution on Stock. 

Compound insurance $24,189.17 Pays $10,301.71 

Specific insurance 1,839.21 Pays 783.29 

Total loss paid $11,085.00 

The amount of the compound insurance left after 
paying the losses on machinery, brewery and stock 
is $13,887.46, which would have to contribute with 
$27.27 specific insurance on shed to pay a loss on 
the shed if it had been damaged. 



CONTRIBUTION OP COMPOUND INSURANCE. 37 

The compound insurance is compelled under the 
application of this rule to contribute from an appor-. 
tionment as follows: 

On machinery $55,000.00 

On brewery 38,691.38 

On stock '. 24,189.17 



Total $117,880.55 

If there had been a loss on the shed, the compound 
insurance of $55,000 would have been compelled un- 
der the application of this rule to contribute from 
$131,768.01, which is nearly three times the amount 
of insurance the policies show was written, and that 
was paid for by the assured. 

Compound Better for Assured than Specific. 

We are led to believe, from the court's comments 
on the compound insurance, that while it is a con- 
tract that is made the same as any other agreement 
where an indemnity is promised, for some reason its 
conditions do not invite the same degree of respect 
and are not as binding on the contracting parties as 
those of the more specific policies. The blanket or 
compound insurance is as legal an agreement as the 
more specific insurance, and its liability is fixed by 
the terms of the contract, and the conditions are as 
binding on the insured as on the insurer, and these 
terms and conditions possess no greater force and 
are no more binding on the contracting parties in a 
policy covering one item specifically, than they are 
in a policy covering more than one item, as com- 
pound insurance. It is true that a compound policy 
is a better contract for the assured than a specific 
policy, but this fact does not change in the least 
degree the legal force and effect of a compound 
policy. 

Under this form of policy the compound insurance 
may become liable for a loss on any one of the four 
items equal to the full amount of the compound in- 
surance. If the property had been so situated that 
one fire could not have destroyed or damaged more 
than one item, this compound insurance would have 
been nearly as good as four specific policies for 
$55,000 each. 

This is the old English rule, which was in use in 
England, and also Canada, about fifty-five years ago, 
except that it has been slightly changed since it was 
introduced into this country, and the change is an 
Improvement, because it reduces the maximum con- 



38 THE APPORTIONMENT OF LOSS AND 

tributive liability of the compound insurance. There 
was no equity in the English rule, but when the 
rule was applied there was equity in its application, 
because each and every item specifically insured was 
treated the same. There is no equity in this rule, 
for one item which is specifically insured is given, 
without a particle of reason, an advantage over the 
other item or items covered by specific insurance. 

In the year 1860, in the adjustment of a loss at 
Albany, N. Y., which involved some complicated 
questions under compound insurance, some twenty 
companies, interested in the adjustment, adopted 
the English rule, and since that time this rule in this 
country has been known as the Albany rule, and for 
a few years after this Albany adjustment some of 
the New York companies had the rule printed in 
their policies. 

ALBANY RULE. 

"If, at the happening of any fire, the assured shall 
have other insurance which includes the premises or 
property herein insured, provided such policy or 
policies shall at any time, or under any circum- 
stances or contingency, be liable to the insured for 
any amount whatever, such policy or policies, as 
between the insured and this company, shall be 
considered as co-insurance and liable to contribu- 
tion, anything in said policy or policies to the con- 
trary notwithstanding." 

The first section of the old Rule VI is the same 
as the Albany rule, but the other two sections of 
the rule make it more liberal to the assured. 

At the time the English rule was applied on the 
Albany loss it was claimed in support of the rule 
that: "Specific policies, by the express terms thereof, 
have a legal and equitable right to insist and de- 
mand that, as between them and the assured, a com- 
pound or collective policy shall contribute with them 
on each of the parcels insured specifically by them, 
and that, so far as their liability is to be deter- 
mined, the collective sum is to be regarded as con- 
tributing insurance on each item so covered." 

This is a statement of what the adjuster who was 
responsible for it thought about the Albany rule, 
but he fails significantly to give any reasons why 
this rule should be used. 

At the same time, it was further stated by an ad- 
juster that: "The assured has, by a special clause 



CONTRIBUTION OF COMPOUND INSURANCE. 39 

in his contract with the specific insurance, equally 
binding on him as on the companies, severally- 
agreed with each of them, 'that in case of loss he 
shall not be entitled to demand or recover, on a 
policy, any greater proportion of the loss or damage 
sustained to the subject insured than the amount 
thereby insured shall bear to the whole amount in- 
sured on the whole property.' The insured has 
therein stipulated with the specific insurance as be- 
tween him and the companies that the compound 
insurance shall contribute with each of them on the 
subject specifically insured by them ; and if the 
amount for which the compound insurance is thus, 
by this contract, to contribute exceeds the amount 
of its policy, the loss in excess of its policy right- 
fully falls on the assured himself, who has, by his 
contract with the specific insurance, especially de- 
barred himself from the right to recover from them, 
respectively, a greater proportion of the loss than 
the amount insured by them shall bear to the whole 
amount insured on the property underwritten by 
them." 

These rules are the English and Albany rule, 
changed so that the compound insurance does not 
contribute from its full amount on more than one 
item that is covered by specific insurance; but in 
any event, if there is a loss on more than one item 
which is specifically insured, the compound insur- 
ance has to contribute from more than its amount. 
This is positively in violation of the pro rata con- 
tribution clause, which is to be found in every fire 
insurance policy issued to-day, and in some of the 
States this clause is, because the whole policy is, a 
statute and a law of the State. 

PRO RATA CONTRIBUTION CLAUSE. 

"This company shall not be liable under this policy 
for a greater proportion of any loss on the described 
property * * * than the amount hereby insured shall 
bear to the whole insurance * * * covering such 
property." 

The whole insurance contemplated by this clause, 
as it seems plain to me, is the amount named in the 
policy, and that the maximum contributive liability 
on any policy is the amount for which it was issued 
and on which the premium was based. In case of 
compound insurance, the courts have repeatedly held 
that the specific insurance can not be made blanket. 



40 THE APPORTIONMENT OF LOSS AND 

therefore the compound insurance must be made 
specific. 

This does not have to bfe done to determine the 
liability of the compound insurance, but it becomes 
necessary only to ascertain the amount of loss to 
be paid by the specific insurance. 

There is no rule for the apportionment of com- 
pound insurance that has ever been used, so far as 
I know, that is not a violation of the pro rata con- 
tribution clause. If the compound insurance were 
to be made specific on the basis of the specific in- 
surance, then the results would be entirely in har- 
mony with the pro rata contribution clause. 

The most that we can expect or wish for, in con- 
nection with this important and very troublesome 
question, is to have some rule, which is equitable in 
principle and in its application, and one that is sus- 
ceptible of the most general application, giving the 
assured the full amount of his loss if it is equal to 
or exceeds the total insurance involved. 

THE NEW JERSEY CASE. 

In the case of Grollimund vs. Germania Fire In- 
surance Co., decided by the New Jersey Court of 
Errors and Appeals, on August 22, 1912, and re- 
ported in 83 Atlantic Reporter, 1108, the court says: 

"A policy of insurance for $2,000 on 'two three 
story frame building tin roof, and its additions and 
foundation walls, while occupied as dwellings, Nos. 
69 and 71 East Twlfth street, Paterson, New Jersey, 
and being $1,000 on each building,* is in its legal 
effect a specific policy of $1,000 on No. 69 East 
Twelfth street and $1,000 on No. 71 East Twelfth 
street, and is not a blanket policy on both Nos. 
69 and 71. 

"A policy of insurance for '$2,000 upon the three- 
story frame building, and its additions adjoining 
and communicating, including gas and water pipes, 
heating apparatus and all permanent fixtures, while 
occupied as a dwelling house and situated Nos. 69 
and 71 East Twelfth street, Paterson, New Jersey,' 
is not a specific policy on No. 69 and No. 71, but is a 
blanket policy on both, and covers to its full amount 
of $2,000 both on No. 69 and 71. 

"In distributing the loss upon two parts of a build- 
ing under one roof, and each part capable of being 
described and insured by street numbers, between 
an insurance policy covering both parts for a gross 
sum and a policy specifically liable on each part, both 
of which policies grant permission to 'effect other 



CONTRIBUTION OP COMPOUND INSURANCE. 41 

insurance' an provide that the liability shall 
not be greater 'than the amount hereby insured 
shall bear to the whole insurance/ the blanket policy 
should be regarded as insuring each part to the en- 
tire amount unappropriated when it is reached, 
making the adjustment part by part in the order 
of the greater loss, if that will work substantial 
equity and justice to all concerned, and deducting 
the sum appropriated to the part as it is adjusted and 
passed/* 

In this decision, the court makes a policy of 
$2,000, contribute from $3,200, and the astonishing 
feature in connection with this decision is, that the 
judges do it after stating the conditions of the pro- 
rata-contribution clause. 

If we had a loss in this case of $2,400, on building 
No. 69 and $1,500 on building No. 71, the blanket 
insurance would contribute from $2,400, and though 
the assured gets only $3,800, on a loss of $3,900, the 
specific insurance has a salvage of $200. 

This rule is so unreasonable and unjust, and so 
clearly in violation of the policy conditions, I am 
surprised when I hear of a court recognizing it as 
a proper one to iapply, when there is non-concurrent 
insurance. 

ARTICLE FROM FIREMAN'S FUND RECORD. 

The Kinne Rule, for the apportionment of non- 
concurrent insurance, had been in universal use, 
by agreement of the insurance companies, on the 
Pacific Coast for many years, and the agreement for 
the continuation of its use has been made. At the 
time the new agreement was being discussed, the 
Fireman's Fund Record published an article dealing 
with the decision in the Connecticut case of Schmaelzle 
vs. London & Lancashire Insurance Co., and in this 
article, the Kinne Rule is applied to the appor- 
tionment problem involved in this decision. This 
article is so complete in the handling of this matter 
that I give it in full: 

"At the last annual meeting of the Fire Under- 
writers' Association of the Pacific, a committee was 
appointed to solicit all managers to agree on the 
Kinne rule for the apportionment with contribution 
of loss under non-concurrent policies. 

"This is the 'Finn' loss to loss rule of 'apportion- 
ment with contribution' of general insurance under 
non-concurrent policies as amended by Colonel Kinne. 

"The Kinne amendment — the Kinne rule — provides 
for the re-apportionment of and contribution pro- 



42 THE APPORTIONMENT OP LOSS AND 



rata from unexhausted insurance to exhaust the 
same or to pay the loss in full. 

''Underwriters at this day and age cut a sorry 
figure before the people and the courts, in having no 
rule to carry out their policy contracts, other than 
the rule of 'devil take the hindmost,' 'catch as catch 
can,' 'pull dog, pull devil,' 'get in first and get the 
advantage of the other company or of the claimant 
in the settlement.' 

"The 'loss to loss' and 'value to value' rules of 
'apportionment with contributions' of the general 
insurance to contribute from the sums so apportioned 
to items, and with the specific sums on such items, 
to pay the losses thereon; and the Cromie, Albany 
and Schmaelzle (decision) rules of 'contribution with- 
out apportionment' to contribute direct from the 
general insurance without first 'apportioning' same, 
were each adopted to fit cases at issue; but neither 
one of these rules will in all cases exhaust the last 
applicable dollar to the payment of loss. 

"These rules, except the 'Albany,' are backed by 
different judicial decisions, but, as in each case the 
amount of insurance was in excess of the loss, the 
question of shortage on any item did not come before 
the court. 

"The Albany rule has been abandoned. 

"The Cromie rule applies to and exhausts all of the 
general insurance in cases where there is specific 
insurance on but one item. 

"The Schmaelzle decision (Schmaelzle vs. Ins. Co.) 
applies the total of the general policy to the payment 
of the loss, first: 'On the first item, the full amount 
of the blanket (general) insurance is to be consid- 
ered; on the second item such amount less its liabil- 
ity on the first item; and so on, the items being 
taken up in the order of the greatest loss.' 

"The figures in that case were: Total insurance 
on buildings and contents, $60,000; 31 policies for 
$55,000 were blanket on the Drojierty, and $5,000 was 
specific, as follows: Brewery $1,635, loss $15,115; 
stock $1,839, loss $11,085; machinery $1,499, loss 
$16,753, and shed $27, no loss. 

"The decision, without first 'apportioning' the 
blanket (general) insurance, contributes from 
blanket and specific in the order of 'machinery, 
largest loss,' No. 1. 'brewery,' No. 2, and 'stock,' 
No. 3. 



CONTRIBUTION OF COMPOUND INSURANCE. 43 

Statement of Loss Under Schmaelzle Decision. 

No. 1 — Machinery. Loss $16,753 



Specific insurance $ 1,499 Pays 447 29% 

General insurance contributes 55,000 Pays '16,306 



$16,753 



No. 2 — Brewery. Loss $15,115 



Specific insurance $ 1,635 Pays 621 37%-{- 

General insurance contributes 38,694 Pays 14,494 



$15,115 



No. 3 — Stock. Loss $11,085 



Specific insurance $ 1,839 Pays 783 42% + 

General insurance contributes 24,200 Pays 10,302 



$11,085 
General insurance, $55,000, contributes on a basis 
of $117,874, pays $41,102—75 per cent. 

The varying percentages, 29 to 42 per cent., as- 
sessed to specific insurances, and 75 per cent, to 
tbe general insurance, proves conclusively that the 
Schmaelzle decision is not equitable between the com- 
panies. 

Had the losses been $23,000, $20,000 and $16,000, 
respectively, the contributions would have been: 
No. 1— Machinery. Loss $23,00(> 



Specific insurance applies $ 1,499 Pays..$ 610 

General insurance applies 55,000 Pays.. 22,390 



$23,000 
No. 2— Brewery Loss $20,000 



Specific insurance applies $ 1,635 Pays..$ 955 

General insurance applies 32,610 Pays.. 19,045 



$20,000 



No. 3— Stock. Loss $16,000 



Specific insurance applies $ 1,839 Pays..$ 1.839 

General insurance applies 13,565 Pays. . 13,565 



Total insurance to pay loss $15 404 



44 THE APPORTIONMENT OF LOSS AND 

Insured short 596 

$16,000 



The total loss is $59,000 

The total insurance to apply thereon is 59,973 

The total payment according to Schmaelzle 

decisioif is 58,404 

Insured is $586 short, with unexhausted in- 
surance 1 ,569 

A bad rule for the Insured. 

• **This Schmaelzle decision, as a rule of law, justice 
or equity, as proven in these examples, fails to carry 
out the basic principles of insurance, which are, 
*that no apportionment of loss must be made among 
companies which will not fully indemnify the in- 
sured to the amount of the insurance, and that no 
company can have a salvage at the expense of its 
fellow-company, or at the expense of the claimant. 

" 'Apportionment with contribution' of this loss by 
the Kinne rule — the 'loss to loss rule with the Kinne 
ajnendment reapportioning from excess insurance to 
pay shortage' — would he as follows: 

. , J , , Re-apportionment 

Ailportionment aud ^^^ Contribution to 

INSURANCE. contribution, Loss p^y shortage Kinne 

to Loss, Rule A" Rule "B" 

No. 1 — Machinery. 

Loss .. $23,000 $23,000 



Ins. Pays Ins. Pays, 

Specific $ 1,499 $ 1,499 $ 1,499 $ 1,499 

<>eneral Appns 21,441 21,441 21,501 12,503 



Totals $22,940 $22,940 

Insurance short 60 



$23,000 $23,000 $23,000 

No. 2 — Brewery. 

Tx)ss $20,000 $20,000 



Ins. ^ Pavs Ins. Pays. 

Sp^ific .$ 1,635 •$ 1,613 $ 1,635 $ 1,615 

-General Appns 18,644 18,387 18,611 18,385 



$20,279 $20,000 $20,246 $20,000 

Unexhausted balance 279 246 

No. 3 — Stock. 

Loss $16,000 $16,000 



Ins. Pays. Ins. Pays. 

Specific $ 1,839 $ 1,756 $ 1,839 $ 1,759 

•Oeneral Appns 14,915 14,244 14,888 14,241 

$16,754 $16,000 $16,727 $16,000 

Unexhausted balance 754 727 



CONTRIBUTION OF COMPOUND INSURANCE. 45 

Ins. Pays. 

Specific $4,973 $4,873 

General 55,000 54,127 

Totals $59,973 $59,000 

**The 'loss to loss' rule (A) apportions to No. 1, 
machinery, the sum of $21,441 from the general in- 
surance, which, with $1,499 specific insurance on that 
item, gives $22,940 to pay loss of $23,000, being $60 
short. 

**The excess insurance on items 2 and 3, also 
covered by the general insurance, is $279 and $754, 
respectively. 

"The reapportionment under the *Kinne rule' (B) 
of the general insurance on these items, $18,644 and 
$14,915, respectively, to pay the $60 shortage on No. 
1, being $33 from the former and $27 from the latter, 
reduces such general insurance in these amounts on 
items 2 and 3, and the contribution to pay the losses 
on the items is made (B) as shown above. 

"This principle of the Kinne rule, reapportioning 
from the excess insurance, would apply, if the short- 
age had been $600 or any other sum, up to $1,033, 
which would have exhausted all of the insurance. 

"Rules of 'contribution without apportionment' do 
not work in all cases. 

"The Schmaelzle decision (rule) speaks for itself. 

"The 'Cromie rule' exhausts all of the general 
insurance, when required to pay the loss, but as it 
will not apply in cases where more than one item has 
specific insurance, it can not be considered as a gen- 
eral rule. 

"The 'loss to loss' rule with the Kinne amendment 
— the Kinne rule — fits all kinds of cases, pays the 
loss or exhausts the applicable insurance, and being 
more equitable between the companies than any of 
the other rules in the books, should be agreed upon 
by underwriters. 

"The claimant under this Kinne rule will ha^ve no 
cause to go into court; and the companies, by agree- 
ing to it, will establish self-respect, save trouble, and 
do not forfeit any rights by such reciprocal agree- 
ment." 

I do not favor the compound insurance any more 
than the specific. Each is a contract in writing, and 
each should be construed according to the language 
used, and to carry out the intent of the parties as 
expressed in the agreement. The specific insurance 
can not be made compound, therefore it becomes 
necessary, in order to fully indemnify the assured. 



46 THE APPORTIONMENT OF LOSS AND 

to apply a forced construction to the compound in- 
surance agreement, and make it conform to the ne- 
cessities of the case, to such an extent that the loss 
can be apportioned. While conceding this, I con- 
tend that the conditions of the compound agree- 
ment are as sacred and as obligatory on the part of 
the contracting parties, as are those of the specific 
agreement. I apprehend this will not be denied. 
I maintain, therefore, that the least violation of the 
compound agreement should be approved as becomes 
absolutely necessary fully to indemnify the assured, 
and yet not violate the conditions of the specific 
contracts. 



PRO RATA CONTRIBUTION CLAUSE. 

The compound and specific contracts each contain 
the pro rata contribution clause, and it is as follows: 

"This company shall not be liable under this policy 
for a greater proportion of any loss on the described 
property, or for loss by and expense of removal from 
premises endangered by fire, than the amount hereby 
insured shall bear to the whole insurance, whether 
valid or not, or by solvent or insolvent insurers, 
covering such property, and the extent of the appli- 
cation of the insurance under this policy or of the 
contribution to be made by this company in case of 
loss, may be provided for by agreement or condition 
written hereon or attached or appended hereto." 

I ask you particularly to remember that the pro 
rata contribution clause as given in full above is in 
both classes of policies, and that it possesses the same 
legal force in one class as in the other, and that it 
is absolutely no more binding as a legal agreement 
in one class of policies than in the other. 

The first point to which I wish to call your atten- 
tion, in construing the insurance contract, is that 
all of the compound insurance for the purpose of 
paying losses covers on the property destroyed or 
damaged. 

In the case of Page Bros. vs. Sun Insurance Office, 
25 Ins. Law Journal 865, decided by the United 
States Circuit Court of Appeals, the court says: 

"The result is that, under a clause in a policy of 
insurance which provides that the company shall not 
be liable for a greater portion of any loss on the 
property described therein than that which the 
amount insured thereby shall bear to the whole in- 
surance covering such property: 



CONTRIBUTION OF COMPOUND INSURANCE. 47 

"First. Compound policies insuring the property- 
described in such a policy, and other property, cover 
the property so described to their full amount, in 
case of a loss upon the property described in the 
specific policy, and no loss on the other property 
described in the compound policies. 

"Second. In such a case the company issuing the 
specific policy is liable for no greater proportion of 
the loss than that which the amount of such policy 
bears to the total amount of both the compound and 
specific policies covering the property it describes." 



LE SURE LUMBER CO. CASE. 

In the case of The Le Sure Lumber Co. vs. Mutual 
Fire Ins. Co., 70 Northwestern Reporter 761, the 
Supreme Court of Iowa says: 

"The policy was designed to secure the plaintiff 
against loss by fire in any one or all of the yards to 
the full amount 6f the policy. It covered all of the 
property which was destroyed, and, if it is paid in 
full, it will not fully compensate the plaintiff for the 
loss sustained. In ascertaining the amount of insur- 
ance, for the purpose of an apportionment, it would 
be just, in the absence of a stipulation to the con- 
trary, to consider only the insurance on the prop- 
erty injured or destroyed; and it will be presumed 
in the absence of a showing to the contrary that 
the parties to the contract provide for a just result. 
The language they use does not necessarily mean 
that in case of loss the defendant should only be 
liable for such proportion of it as the amount it 
insured was of the total insurance on all of the 
property described in its policy, whether the concur- 
rent insurance was on all of the property or only a 
part of it. We think a permissible, and the correct, 
interpretation of the policy is that in case of a loss 
the defendant was not to be liable for a greater pro- 
portion of it than the amount of its policy bore to 
the total insurance on the proportion injured or de- 
■stroyed. It is true the words 'described property,' 
if not modified, refer to all of the property covered 
I)y the policy, and the phrase 'covering such prop- 
erty* is equally comprehensive; but considered in 
their relation to the word 'loss,' and the purpose for 
which the policy was issued, we are of the opinion 
that they should be held to refer to property which 
should be injured or destroyed." 



48 THE APPORTIONMENT OF LOSS AND 

"AMOUNT INSURED" AND "TOTAL INSURANCE" 

The next point for consideration, as I view this 
question, is as to what is meant by the words 
*'amount insured" and "total insurance," as used in 
the pro rata contribution clause, as follows: 

"This company shall not be liable under this pol- 
icy for a greater proportion of any loss on the de- 
scribed property, or for loss by and expense of 
removal from premises endangered by fire, than the 
amount herehy insured shall bear to the whole in- 
surance, whether valid or not, or by solvent or in- 
solvent insurers, covering such property, and the 
extent of the application of the insurance under this 
policy or of the contribution to be made by this 
company in case of loss, may be provided for by 
agreement or condition written hereon or attached 
or appended hereto." 

In the case of the Farmers' Feed Company vs. 
Scottish Union & National Ins. Co., 65 Northwestern 
Reporter ly05, decided January 13,th, 1903, by the 
Court of Appeals of New York, the court says: 

"The decision of the controversy turns on the 
meaning of the words 'whole insurance,* as used in 
the apportionment clause of the defendant's policy. 
It was there provided that the defendant should not 
be liable for a greater proportion of any loss than 
the amount insured by its policy shall bear to the 
whole insurance on the property." 

"The four companies stipulated that they should 
'be liable for no greater proportion' of the loss, 
which was $45,321.18, 'than the sum hereby insured,' 
or $17,500, 'bears to 80 per cent, of the cash value of 
the property,' which was $99,728. Their liability, 
therefore, is represented by the following propor- 
tion: As $99,728 is to $17,500, so is $45,321.18 to the 
amount required, or $7,952.84. Was this 'the whole 
insurance' effected • by the four policies containing 
the co-insurance clause? If so, that clause has no 
effect in this case. We think it was not, for, if the 
loss had been greater, the amount called for by the 
policies would have been greater also, and yet it 
would not have exceeded the amount of insurance. 
The largest sum, which in any event, can he col- 
lected under a policy, and not the smaller sum which 
may be collected under special circumstances, is the 
amount of insurance effected hy the policy. There 
is no limit to the possible liability under the four 
policies, except the amount that the companies stip- 



CONTRIBUTION OF COMPOUND INSURANCE. 49 

ulate it should not exceed, aggregating $17,500, 
which they would have been obliged to pay if the 
loss had been total. 

"The amount of insurance, therefore, is the largest 
sum that the company, under any circumstances, 
according to the terms of the policy, can he required 
to pay. This is the popular understanding as well 
as the legal definition." 

Amount of Insurance the Same. 

"The amount of insurance is at all times the same, 
but when the loss is partial the insurer stands only 
a part, unless the insurance is for the full percent- 
age; whereas, if the loss is total, the insurer stands 
all, not exceeding the limit stated in the policy. 
That limit is the amount of insurance made by the 
policy, because the company may be required to pay 
to that extent. The words of the co-insurance clause, 
viz., 'the sum hereby insured,' indicate the amount of 
insurance. That sum is fixed, definite and always 
the same." 

"For the purpose of apportionment, the face values 
of the policies should be resorted to, regardless of 
the cash value of the property, and thus the whole 
amount of the insurance can be ascertained by a 
simple inspection of the policies. The face value 
of a policy is not reduced by the actual value of the 
property, or by the duty of apportioning the loss, or 
by the effect of a co-insurance clause in another 
policy on the same property. The amount of insur- 
ance is fixed at the inception of the policy, but the 
amount of liability is not fixed until a loss has oc- 
curred. The one depends upon the sum for which 
the policy is written, but the other depends upon a 
number of contingencies which may or may not 
happen, and hence can not be known in advance. 
The fact that they are not known, and may never 
come into existence, does not affect the amount of 
the policy." 

Two Questions in Case of Stephenson vs. Agricultural. 

In the case of Isaac Stephenson et al., Executors, 
vs. Agricultural Ins. Co., decided by the Wisconsin 
Supreme Court, in January, 1903, the court says: 

"This appeal calls for the solution of two ques- 
tions concerning the construction of significant 
words in this part of Sections 1941-58, R. S. 1898: 



60 THE APPORTIONMENT OF LOSS AND 

" *This company shall not be liable under this 
policy for a greater proportion of any loss on the de- 
scribed property * * * than the amount hereby in- 
sured shall bear to the whole insurance, whether 
valid or not.* 

These are the questions: 1. Do the words 'amount 
hereby insured' refer to the face of the policy — the 
maximum of the risk assumed under any or all cir- 
cumstances? 2. Do the words *whole insurance' re- 
fer to the aggregate of the maximum risks assumed 
by all insurers in respect to the property? Affirma- 
tive answers will lead to an affirmance of the judg- 
ments. 

"What has been said as to what constitutes the 
amount of the insurance under that part of the 
standard policy, as regards Sections 1941-43, R. S. 
1898, applies to that part embodying Sections 1941-58 
id. Note the plain distinction in the latter section 
between 'amount hereby insured,' or 'whole insur- 
ance,' and 'loss': 'This company shall not be liable 
under this policy for a greater proportion of any 
loss * * * than the amount hereby insured shall 
bear to the whole insurance.' To say that the terms 
'liability,' 'loss,' and 'amount insured,' or 'whole in- 
surance,' are synonymous, or that the amount of in- 
surance is undeterminable in advance of loss, is 
well-nigh, if not quite absurd. The language of the 
section as a whole is too plain to admit of any re- 
sort to rules for judicial construction to determine 
its meaning. As indicated, 'loss' refers to the dam- 
ages of the assured measured in money; 'liable,' or 
'liability,' to the amount of such loss which the suf- 
ferer, under the insurance contract, may recover 
upon the policy, and 'amount hereby insured' to the 
risk assumed under the policy — the amount which, 
regardless of any loss paid, remains subject to be 
drawn upon from time to time to satisfy other losses 
till it shall have been wholly exhausted. 

"The words 'amount of insurance* and 'amount 
insured' are used in the 80 per cent, clause in a way 
to clearly indicate that they refer to the maximum 
risk assumed, the $7,500. Here is the language: 
'If, at the time of the fire, the whole amount of in- 
surance on said property shall be less than 80 per 
cent., this company shall, in case of loss or damage 
less than said 80 per cent., be liable only for such 
portion thereof as the amount insured by this policy 
shall bear,' etc. There can be no mistaking the con- 
nection between the significant words in that clause 



CONTRIBUTION OF COMPOUND INSURANCE. 51 

and the maximum risk assumed by the company and 
by all the companies. 

MAXIMUM AMOUNT OF RISK ASSUMED. 

'There is abundance of authority supporting the 
conclusions that 'amount hereby insured/ and simi- 
lar expressions as regards a particular policy, mean 
maximum amount of risk assumed; that 'the whole 
insurance,' and similar expressions as to any given 
parcel of property covered by several policies of 
insurance, with or without a limitation of liability 
clause similar to the one in the Milwaukee Mechan- 
ics' Insurance Company policy, mean the aggregate 
maximum risks assumed under all the policies,'' 

It is very evident from the strong language used 
by the courts in these two cases, that the amount 
hereby insured when applied to the compound in- 
surance in this case, means $55,000, and that the 
whole insurance means the total amount^ of insur- 
ance named in the policies, and not one cent more, 
which in this case, there being no loss on the shed, 
would be $59,972.73. 

TWO IMPORTANT PROPOSITIONS. 

The decisions referred to herein, which were ren- 
dered by the United States Circuit Court of Appeals, 
the Supreme Court of Iowa, the Supreme Court of 
Wisconsin, and the New York Court of Appeals, 
very clearly establish two propositions, and though 
both of them are of the utmost importance in con- 
sidering the questions involved in this Connecticut 
case, the court ignored them entirely in the decision. 

The first one of these propositions is that all of 
the compound insurance for the purpose of paying a 
claim for loss or damage, covers only on the prop- 
erty which is destroyed or damaged. The second is 
that the words "amount hereby insured'' mean max- 
imum amount of risk assumed, or the largest amount 
which in any event can be collected under a policy, 
and this is the amount of insurance effected by the 
policy. Also that the words "whole insurance" 
mean as to any parcel of property covered by insur- 
ance, the aggregate maximum risks assumed on the 
property, under all the policies. 

In view of the above decisions, what is the liabil- 
ity of the compound insurance involved in the Con- 
necticut opinion? The statement shows that there 



52 THB APPORTIONMENT OF LOSS AND 

was no loss on the shed, which was specifically in- 
sured for $27.27, and this therefore leaves $4,972.73 
specific insurance, covering on brewery, stock and 
machinery, to contribute with $55,000 compound in- 
surance to pay a $42,953 loss. 

Apportionment and Contribution on Brewery, Stock 
and iVIachinery. 

Compound insurance $55,000.00 Pays $39,391.48 

Specific insurance 4,972.73 Pays 3,561.52 



Total insurance of ... .$59,972.73 Pays $42,953.00 
Under the strict legal construction of the com- 
pound agreement, we find that this class of insur- 
ance pays $39,391.48 loss. 

We find when comparing the last apportionment 
with them, made under the ruling of the court in the 
Connecticut case, that under the last apportionment 
the compound insurance pays $39,391.48, which is 
5.500.000/5,997,273 of $42,973, the total loss. That 
under the first apportionments the compound insur- 
ance paid $41,112.54 loss, or $1,721.06 more than un- 
der the last. I contend that there is no legal or 
equitable reason why the compound insurance should 
be slaughtered in this way, and made to pay nearly 
50 per cent, of the loss which should be paid by the 
specific insurance. The legal liability of the com- 
pound insurance is $39,391.48, and that rule which 
will produce approximately this result and let the 
specific insurance contribute from the specific 
amounts, and which is susceptible to the most gen- 
eral application, is in my judgment the one the 
companies should adopt and the courts apply. 

To say, as the court does in this Connecticut de- 
cision, that a total insurance of $55,000 covers at 
one and the same time $55,000 on machinery, $38,- 
691.38 on brewery, $24,189.17 on stock, and $13,887.- 
46 on shed, is as unreasonable and impossible as it 
would be to say that fifty-five gallons of water could 
be made to fill at one and the same time four tanks, 
one of fifty-five gallons, one of thirty-nine gallons, 
one of twenty-five gallons and one of fourteen gal- 
lons. It strikes me that the contention which is 
made in support of this rule is not only unreason- 
able and inconsistent, but illegal. This is certainly 
reading conditions into the contracts which are not 
there, and were not intended by either party when 
the contracts were made, to be forced into them and 
made a part thereof. 



CONTRIBUTION OF COMPOUND INSURANCE. 53 

Compound Does Not Cover in Full Where There Is 
Specific. 

The United States Circuit Court of Appeals, in the 
case of Page Bros. vs. Sun Insurance Office, 25 Ins. 
Law Journal 865, says: ''Compound policies insur- 
ing the property described in such a policy, and 
other property, cover the property so described to 
their full amount, in case of a loss upon the property 
described in the specific policy and no less on the 
other property described in the compound policies." 

From the language used in the decision in the 
Page Bros, case, it is clearly evident that the- court 
would hold that the $55,000 compound insurance 
would not cover for its full amount on machinery, 
or any one of the three items on which there was a 
loss, but that the $55,000 compound insurance would 
cover on all of the three items on which there was 
a loss. In other words, if I correctly understand this 
decision, the court decides that if the compound in- 
surance covers property which is specifically in- 
sured, and the loss is on property which is specifi- 
cally insured, and on other property which is covered 
by the compound insurance, then the compound in- 
surance does not cover for its full amount on the 
property specifically insured. If the loss in the Con- 
necticut case had been only on machinery, then all 
of the $55,000 compound insurance would have cov- 
ered for the purpose of paying the loss on machin- 
ery, but as there were losses on brewery and stock, 
only a part of the $55,000 compound insurance cov- 
ered on machinery, and not the whole of it, as de- 
cided by the court. 

In 1854 an effort was made to have the rule used 
by the Connecticut court applied to a case in Ken- 
tucky. This rule, with others, was considered by 
the court, and, though the attorney made a strong 
argument for the rule, the court declined to adopt 
it. This was the case of Cromie vs. Kentucky & 
Louisville Mutual Ins. Co., 15 B. Monroe (Ky.) 432. 
The attorney for the insurance company said: 

*'The Kentucky & Louisville Mutual Insurance 
Company issued a policy on Cromie's paper mill for 
$5,000. An addition to the mill was subsequently 
built and both buildings were insured together in 
other offices for $7,000 besides, maging the total sum 
insured $12,000. Both buildings were damaged by 
fire, and this company has paid five-twelfths of the 
loss on the old building. The question presented 



54 THE APPORTIONMENT OF LOSS AND 

and decided below was as to the mode of adjusting 
the loss, and by agreement the same question is pre- 
sented here. 

"If the new building alone had burned, this insur- 
ance company would not have been bound for any 
part of the loss, because that building was not em- 
braced in her policy. If the old building alone had 
burned, she would have been liable for only five- 
twelfths of the loss not exceeding the sum by her 
insured. Now, when both buildings bum, if a rule 
of adjustment is fixed whereby this company pays 
more than if the old building alone had burned, to 
that extent she is made to pay for the loss on the 
new building, which is not embraced in her policy. 

"The other underwriters can not justly complain 
of the mode of adjustment proposed above. As to 
them the risk is a unit. Their policies embrace 
both buildings as a whole, and they have no more 
right to apportion their risk on the constituent parts 
of the building insured than upon its rooms or sto- 
ries. Let the loss fall upon what part or parcel it 
may, they must make good their contract with Cro- 
mie. True, their pro rata might be larger if only 
the portion not embraced in this policy should burn 
than if the other alone burned, for in the first case 
the contribution would be by sevenths, and in the 
last by twelfths; but this results from their con- 
tract, and truly this insurance company is not an 
underwriter for them." 

In the case of Angelrodt & Barth vs. Delaware 
Mutual Ins. Co., 31 Mo. 5.93, decided in 1862, the 
same rule was considered. The policy of one com- 
pany covered on merchandise, and the other policy 
covered on merchandise, their own and held on stor- 
age. There was a loss on their own merchandise 
and also on the merchandise held on storage. The 
court was asked to make the compound policy con- 
tribute from its full amount, with the specific insur- 
ance on merchandise to pay the loss on merchandise. 
The court refused to apply the rule, and applied 
what is known as the Cromie rule. 

In 1872 the Supreme Court of the State of New 
York, in the case of Ogden vs. Insurance Co., 50 N. 
Y. 388, considered this rule, and the court said: 
"Where several parcels of property are insured to- 
gether for an entire sum, it is impossible to say as 
to either of the parcels that there is no insurance 
upon it." 



CONTRIBUTION OF COMPOUND INSURANCE. 56 

The court also said in this case: "Neither can we 
agree to the doctrine contended for by the counsel 
for the appellant, that the whole sum insured by the 
more comprehensive policy is to be considered as so 
much additional insurance upon the parcels sepa- 
rately insured." 

In the Connecticut case there is $1,498.64 specific 
insurance covering on the machinery with a loss of 
$16,753, and here we are confronted with one ques- 
tion that is difficult to solve, and that is, what is the 
^'wJiole insurance'' covering on the machinery? It 
can not be $55,000, for that in this case is the total 
compound insurance covering on machinery, brewery 
and stock. We can not make the specific insurance 
compound insurance, and therefore here is where we 
must to a certain extent violate the conditions of the 
compound insurance, and arbitrarily determine what 
part of this $55,000 compound insurance covers on 
the machinery. I advocate applying a rule which, in 
its application, violates to the least extent the terms 
and conditions of the compound insurance, and which 
is susceptible of the most general application in this 
class of propositions. 

A DISCRIMINATION. 

I contend that it is less a violation of the com- 
pound insurance contract to make it specific on the 
basis of the loss than it is to do as the court has" 
done in this Connecticut case, and say that $55,000^ 
insurance should be made to contribute from $131,- 
768.01, and that one of four items covered by specific 
insurance is entitled to an advantage, such as is^ 
given over the other items. There is not a word im 
the policy which even gives an intimation that $55,- 
000 compound insurance should be made to contriliy- 
ute from $131,768.01, but the wording of the pro rata 
contribution clause shows that the "amount herehy 
insured'' in this case means $55,000. There is not a 
word in the policy which shows that the specific in- 
surance on machinery is entitled to any advantages 
over the specific insurance on brewery or stock. If 
the specific insurance on machinery is entitled to 
have the compound insurance contribute from $55,- 
000, then the specific insurance on brewery and stock 
is entitled to the same consideration and treatment. 

In this Connecticut case the blanket insurers asked 
to have the compound insurance made specific on the 
basis of the loss or sound value. In answering this 
question, the court says: "What the blanket insur- 



56 THE APPORTIONMENT OP LOSS AND 

ers ask is, in effect, that there be read into their 
policies a provision which is not there. Had the par- 
ties wished, this proposition might easily have been 
incorporated. It was not, and the contract must stand 
as made." It is conceded by me that the policies do 
not provide for making the compound insurance spe- 
cific on the basis of loss or sound value. It is at the 
same time contended by me that the policies do not 
provide for making $55,000 compound insurance con- 
tribute from $131,768.01, and furthermore they do not 
provide that one item specifically insured should have 
such an advantage over another item similarly in- 
sured, as the court gave in this case to the specific 
insurance on machinery, over the specific insurance 
on brewery and stock, and to the specific insurance 
on machinery and brewery over the specific insurance 
on stock. 

COMPOUND SPECIFIC ON BASIS OF LOSSES. 

If we apply the rule which makes the compound 
insurance specific on the basis of the losses, we have 
15.115/42,953 of $5,000, or $19,354.30 covering on 
brewery; 11,085/42,953 of $55,000, or $14,194.00 cov- 
ering on stock, and 16,753/42,953 of $55,000, or $21,- 
451.70 covering on machinery. 

Apportionment and Contribution on Brewery. 

Compound insurance $19,354.30 Pays $13,937.67 

Specific insurance 1,634.88 Pays 1,177.33 

Total insurance of $20,989.18 Pays $15,115.00 

Apportionment and Contribution on Stock. 

Compound insurance $14,194.00 Pays $9,813.41 

Specific insurance 1,839.21 Pays 1,271.59 

Total insurance of $16,033.21 Pays $11,085.00 

Apportionment and Contribution on Machinery. 

Compound insurance $21,451.70 Pays $15,659.04 

Specific insurance 1,498.64 Pays 1,093.96 

Total insurance of $22,950.34 Pays $16,753.00 

The compound insurance insures and pays under 
the above apportionments as follows: 

On brewery, insurance $19,354.30 Pays $13,937.67 

On stock, insurance 14,194.00 Pays 9,813.41 

On machinery, insurance.. 21,451.70 Pays 15,659.04 

Total insurance of $55,000.00 Pays $39,410.12 



CONTRIBUTION OF COMPOUND INSURANCE. 57 

We have found that the liability of the compound 
insurance under the pro rata contribution clause, 
which fixes its limit of liability at such a part of the 
loss as the amount insured bears to the whole insur- 
ance to be 5,500,000/5,997,273 of $42,953.00, or $39,- 
391.48. Under the application of the rule making the 
compound insurance specific on the basis of the losses, 
we make it pay $39,410.12, which is $18.64 more than 
its actual legal liability, as shown by the statement 
made in detail herein. 

A QUESTION OF REASON AND NOT OF 
AUTHORITY. 

In the Connecticut case the court admits that a 
majority of the decisions are against the rule which 
It applies, and on this subject it says: "We have 
thus far discussed the question at issue as one of 
reason, and not of authority. The analogous cases 
are few. They are, however, to be found. Concern- 
ing them it has to be confessed that the majority 
which have arisen under the operation of the pro 
rating clause have adopted the compound insurers' 
view. It is noticeable, also, that of these all save a 
few state the proposition as a dictum, or simply its 
correctness without argument or reason therefor." 

The court furthermore says: "It is practically as 
simple to adjust a loss by not apportioning as by ap- 
portioning the blanket insurance." If the court had 
been able to proVe the truth of this statement and 
had proven that it could be done without violating 
the contracts, the opinion would have been very val- 
uable to the insurance fraternity. It can not be de- 
nied that the court succeeded in determining the 
liability of the companies interested in this case 
without an apportionment, but it has to be admitted, 
hecause it is true, that the court, in order to do so, 
grossly violated two well-known conditions of the 
contracts. 

In order to show what could happen, in the appli- 
cation of this rule, I will apply it to an assumed 
case. 

Statement of Loss. 

Insurance: 

^tna, on wheat $10,000 Loss $18,000 

Continental, on corn 10,000 Loss 17,991 

Home, on grain 20,000 Loss 

Total insurance $40,000 Loss $35,991 



58 THE APPORTIONMENT OF LOSS AND 

In this assumed case, we have the largest amount 
of loss on wheat, which is specifically insured under 
the ^tna policy for $10,000, and under the applica- 
tion of this rule we have $20,000 compound insurance 
hy the Home, which is to contribute with it, to pay 
the loss of $18,000. 

Apportionment and Contribution on Wlieat. 

Compound insurance $20,000 Pays $12,00a 

Specific insurance 10,000 Pays 6,00a 

Total insurance of $30,000 Pays $18,000 

The compound insurance of $20,000 has paid $12,- 
000 on wheat, which leaves $8,000 to contribute with 
the $10,000 specific insurance in the Continental to 
pay the $17,991 loss on corn. 

Apportionment and Contribution on Corn. 

Compound insurance $8,000 Pays $7,996 

Specific insurance 10,000 Pays 9,995 

Total insurance $18,000 Pays $17,991 

The ^tna and Continental each have a policy for 
$10,000, and each is entitled to the same treatment 
so far as the compound insurance is concerned; yet 
this rule makes the ^tna pay $6,000 loss, under its 
$10,000 on wheat, when the total loss on wheat is 
$18,000, and the Continental, under its $10,000 on 
corn, pays $9,995 when the total loss on corn is $17,- 
991, or $9.00 less than the loss on wheat. The ques- 
tion as to whether or not the Continental would ap- 
prove of this apportionment, which makes it pay $3,- 
995 more loss than the ^tna pays, is not even de- 
batable. It is a certainty that the Continental, or any 
other company placed in the same position, would 
repudiate such an unreasonable and inconsistent 
adjustment. 

In the case of Cromie vs. Kentucky &, Louisville- 
Insurance Company, 15 B. Monroe (Ky.) 432, in the 
lower court, the adjustment was made by making the- 
compound Insurance contribute from its full amount 
with the specific insurance, same as is done when 
applying the Chicago and Hartford rules. 

The attorneys for the insurance company stated its^ 
case as follows: 

"The Kentucky & Louisville Mutual Insurance Com- 
pany issued a policy on Cromie's paper mill for $5,- 
000. An addition to the mill was subsequently built,. 



CONTRIBUTION OF COMPOUND INSURANCE. SD- 

and both buildings were insured together in other 
offices for $7,000 besides, making the total sum in- 
sured $12,000. Both buildings were damaged by fire, 
and this company has paid five-twelfths of the loss 
on the old building. The question presented and de- 
cided below was as to the mode of adjusting the loss, 
and by agreement the same question is presented 
here." 

The attorneys for the assured argued that the loss 
should be adjusted as follows: 

*'The other insurers insist that the following is the 
true mode of adjustment: Deduct the loss on the 
new buildings from the sum by them insured, and 
then compute the loss on the old building as if the 
balance left was the sum by them insured on the old 
building. 

''And although we decline to determine in the pres- 
ent suit the proportion for which each of the compa- 
nies is liable for the loss on the original building, 
which alone w^as insured by the defendants, while 
the other companies insured also the addition, we are 
of opinion that even if the plaintiff's recovery in this 
case should be restricted to the proportionate liabil- 
ity of the defendants on their policy, he has show^n a 
right to recover from them more than five-twelfths 
of the amount of their policy, which is as much as 
they have paid; and "which would be the extent of 
their proportional liability if the original building 
alone were insured by all the policies, amounting in 
the aggregate to $12,000, without taking into consid- 
eration the loss falling upon the other insurers, on 
account of the additional building covered by their 
policies, and which has suffered detriment by fire to 
the amount of more than $1,100, which they must 
pay. The amount of this loss, at leasts should he 
deducted from their policies lyefore their aggregate 
amount is brought into the calculation by which the 
proportional liaMlity of each is to he ascertained.'" 

This class of claims is of so much importance, re- 
quires our consideration so frequently, is the cause 
of so many contentions and so much discussion be- 
tween the adjusters, and costs the assureds and the 
companies so much money for legal contests, that it 
seems to me the leading companies ought to agree 
to use a rule which is based on a principle of equity — 
which will maintain a proper ratio of proportion in 
the apportionment of the compound insurance — which 
will give the assured the full benefit of his insurance, 
in accordance with the contract, as it has been con- 
strued by the courts, which is susceptible of the most 



. €0 THE APPORTIONMENT OF LOSS AND 

general application, and which is not in conflict with 
the pro rata contribution clause of the policy. 

The rule which I use and which I am in favor of 
applying is not new. It was recommended by Jere- 
miah Griswold in his book entitled, "Fire Underwrit- 
ers' Text-Book," which was published in 1872. 

THE GRISWOLD RULE. 

''Compound policies become specific and cover the 
several subjects under their protection in the exact 
proportions of the respective losses thereon." 

This rule is the basis, and it contains the princi- 
ple which is the foundation for the rules necessary 
to be used to make the basis rule applicable to the 
various cases. 

While the basis rule given by Mr. Griswold seems 
restricted to a single apportionment, and that a re- 
apportionment was not contemplated, he demon- 
strated that he recognized there were conditions 
which might exist when one or more re-apportion- 
ments would be necessary. 

In cases where the compound insurance covers 
items of property not protected by any of the specific 
insurance, the courts have made a rule which is 
easily applied, and which avoids some of the prob- 
lems that might be involved if the Griswold rule, as 
given below, were applied. The rule was made in 
the case of Cromie vs. Kentucky & Louisville Insur- 
ance Company, 15 B. Monroe (Ky.) 432. Mr. Gris- 
wold recognized the rule applied in this case, and 
advocated its use. 

The principle which is the basis for the Griswold 
Rule has been recognized by the courts in the follow- 
ing cases: 

Cromie vs. Kentucky & Louisville Mutual Insurance 
Company, 15 B. Monroe (Ky.) 432. 

Mayer vs. American Insurance Company, 18 Ins. 
Law Jaurnal, 156. 

Angelrodt & Barth vs. Delaware Mutual Insurance 
Company, 31 Mo. 593. 

Page Bros. vs. Sun Fire Office, 25 Ins. Law Journal 
865. 

Le Sure Lumber Co. vs. Mutual Fire Insurance 
Company, 7 N. W. Rep. 761. 

In the case of Mayer vs. American Insurance Com- 
pany, the court uses the word "value" instead of the 
word "loss," and unless the decision is carefully ex- 
amined you would be led to believe that the Reading 
Rule had been applied. 



CONTRIBUTION OP COMPOUND INSURANCE. 61 

THE KINNIE RULE. 

Since 1885 this rule has been in general use on the 
Pacific Coast, and is known as the Kinnie Rule. The 
principle of the rule is so clearly stated, and the 
rules necessary to give it full effect and make it gen- 
erally applicable are so complete, I deem it advisable 
to give you a copy of it. 

The Principle. 

"The principle governing all apportionments of 
non-concurrent policies is, that general and specific 
insurance must be regarded as co-insurances; and 
general insurance must float over and contribute to 
loss on all subjects under its protection, in the pro- 
portions of the respective losses thereon, until the 
assured is indemnified, or the policy exhausted. 

Steps to Be Taken. 

"The correct method of applying the principle has 
been formulated in the following: 

"First. Ascertain the non-concurrence of the va- 
rious policies and classify the various items covered 
into as many groups as the non-concurrence demands, 
whether of property, location or ownership. 

"Second. Ascertain the loss on such groups of 
items separately. 

"Third. If but a single group is found with a loss 
upon it, the amounts of all policies covering the 
group contribute pro rata. 

"Fourth. If more than one group has sustained a 
loss, and such loss on one or more groups be equal 
to or greater than the total of general and specific 
insurance thereon, then let the whole amounts of such 
insurance apply to the payment of loss on such 
groups. 

Apportionment. 

"Fifth. If more than one group has sustained a 
loss, and such loss be less than the totals of unex- 
hausted general and specific insurance thereon, then 
apportion the amount of each policy covering on such 
groups generally, to cover specifically on such groups 
in the same proportion that the sum of the losses on 
such groups bears to the loss on each individual group. 
(See Note.) 

"Note. — When a group is covered -by one or more 
general policies, it would be well to see at once if 
an apportionment as above on that group would 
equal the loss, as, in case it will not, it will show 



«2 THH APPORTIONMENT OP LOSS AND 

without further calculation that the whole amount 
of loss on such group must be met by such policies 
' pro rata, and the remainder only apportioned. In 
fiuch cases, carrying out Step 6 simply accomplishes 
by a longer process what here is indicated. 

Re-Apportionment. 

**Sixth. If the loss on any group or groups is then 
found to be greater than the sum of the now specific 
insurance as apportioned, add sufficient to such spe- 
cific insurances to make up the loss on the group, 
taking the amount of the deficiency from the now 
specific insurances of the heretofore general amounts 
previously covering the new deficient groups, which 
cover on groups having an excess of insurance, in 
the proportion that their sums bear to the individual 
amounts. 

"Note. — Very rarely are new deficiencies created by 
the re-apportionment, but if so, simply repeat Step 6. 

"Seventh. Cause^ the -amounts of all the now spe- 
cific insurances to sevetally contribute pro rata to 
pay the partial losses, and it will be found that the 
whole Scheme has resulted in the claimant being 
tully indemnified in accordance with the various con- 
tracts and on a basis which preserves the equities 
between the companies throughout. 

"To simplify matters the following formula is 
given in order that time may be saved, when no 
analysis of the principle is desired or argument 
needed. 

Apportionment. 

"General policies covering on more than one group 
should be divided into specific sums as follows: 

Formula. (See Step 5.) 

"1— As the sum of the losses on such groups, 

"2 — Is to the individual loss on each of them, 

«'3_So is the whole amount of policy so cover- 
ing, 

"4 — To the specific amount to apply on each 

group. 

Method of Computation. 

"Divide No. 3 by No. 1 to get per cent., and then 
multiply by No. 2 (seriatim) to get No. 4. 

Re-Apportionment. 

"Should there not be enough insurance on a group 
or groups to pay the loss, and some groups have 



CONTRIBUTION OF COMPOUND INSURANCE. 63 

more than enough, a second re-apportionment is nec- 
essary, though ordinarily but one is needed. 

Formula. (See Step 6.) 

"1 — As the sum of specific insurance (with sur- 
plus), 

"2 — Is to the individual amount of each of 

them, 

**3 — So is the sum to be provided, 

<*4 — To the amount each group will contribute. 

Method of Computation. 

"Divide No. 3 by No. 1 to get per cent, and then 
multiply by No. 2 (seriatim) to get No. 4. 

"Repeat Step 6 when necessary. 

"The deficient groups can now be fortified by the 
exact amounts needed to pay the losses, and the prob- 
lem is at once narrowed down to an ordinary mathe- 
matical one. 

Contribution. 

"All groups have now specific insurance on them, 
and will pay the losses pro rata, whereby absolute 
indemnity to the assured, and equitable contributions 
by the companies are attained on the proper and un- 
changing principle of loss to loss." 

It is first necessary to separate the property de- 
stroyed or damaged into as many groups as the non- 
concurrency of the various policies demands. The 
non-concurrency may be because of different classes 
of property being covered by the insurance, or the 
property may be in different locations, or there may 
be different interests. It then becomes necessary to 
ascertain the amount of loss on each item of property 
destroyed or damaged which is now the subject of 
specific insurance. 

I will make the apportionment and contribution 
in a case where the compound insurance covers items 
not protected by the specific insurance. In the first 
statement I will make the compound insurance spe- 
cific on the basis of the loss. I will then make the 
apportionment as provided by the rule made by the 
court in the Cromie case. 

Statement. 

Continental — On Corn $2,500; loss on corn, $4,000 

^tna — On Com and Oats.. 7,500; loss on oats, 1,000 
If we make the compound policy issued by the 
^tna specific on the basis of loss, we have four-fifths 
covering on corn and one-fifth covering on oats. 



64 THE APPORTIONMENT OP DOSS AND 

Apportionment and Contribution on Corn. 

Continental insures $2,500 Pays $1,176.47 

^tna insures G,000 Pays 2,823.53 

Total loss paid $4,000.00 

Apportionment and Contribution on Oats. 
^tna insures $1,500 Pays $1,000.00 

Total loss paid $1,000.00 

^tna pays on Corn $2,823.53 

^tna pays on Oats $1,000.00 

Total loss paid. $3,823.53 

Continental pays $1,176.47 

^tna pays $3,823.53 



Total loss paid $5,000.00 

In the case of Cromie vs. The Kentucky & Louis- 
ville Mutual Insurance Company, 15 B. Monroe (Ky.), 
432, the court made a rule for this class of cases, and 
it has been and is being generally used. 



THE CROIVIIE RULE. 

When the compound insurance covers property 
which is not covered by the specific insurance, a por- 
tion of the compound insurance, equal to the amount 
of loss on this property, must be set aside to pay this 
loss. .The remainder of the compound insurance con- 
tributes with the specific to pay the loss on the prop- 
erty covered by the specific insurance. If the loss on 
the property covered only by the compound insurance 
is equal to or greater than the compound insurance, 
this insurance will be exhausted and there will be 
nothing to contribute from, to help out the specific 
insurance. 

If we apply this rule to this case we get different 
results, but only to the amounts the companies pay. 
The assured receives the full loss. The Cromie Rule, 
applied, results as follows: 

Apportionment and Contribution on Oats. 

^tna insures $1,000 Pays $1,000.00 



Total loss paid $1,000.00 



CONTRIBUTION OF COMPOUND INSURANCE. 65 

Appoptionmerrt and Contribution on Corn. 

Continental insures $2,500 Pays $1,111.11 

Aetna insures 6,500 Pays 2,888.89 

Total loss paid $4,000.00 

^tna pays on Oats $1,000.00 

^tna pays on Corn 2,888.89 

Total loss paid $3,888.89 

Continental pays • $1,111.11 

^tna pays 3,888.89 

Total loss paid $5,000.00 

The application of the Cromie Rule makes the 
^tna pay $65.36 more, and the Continental pays 
$65.36 less than was the result of the application of 
the first rule. 

This rule, which I call the Cromie Rule, and which 
is the last one applied, is so generally used and has 
been approved by the courts in so many cases, it is 
safe to insist on its application. 

This Cromie case is of so much importance when 
considering the apportionment of compound insur- 
ance, I will give you a copy of the full decision. You 
will readily understand when reading the case that 
the policies issued when the one involved in this suit 
was, did not contain the pro rata contribution clause. 

THE CROMIE CASE. 
Statement. 

"1. The insured, where there are several policies 
covering the same property, is entitled to but one 
indemnity, which he may recover from anyone, and 
those who pay must seek contribution from other in- 
surance. (1 Phill. on Ins., ed. of 1823, p. 326: 2 lb. 
224, 387, 496.) 

"2. If there be a double insurance, and part be 
recovered on one policy, the remaining loss may be 
recovered on another. 

"The facts of the case are stated in the opinion of 
the court. 

Statement of Attorneys for Appellee. 

"The Kentucky & Louisville Mutual Insurance 
Company issued a policy on Cromie's paper mill for 
$5,000. An addition to the mill was subsequently 
built, and both buildings were insured together in 

5 



66 THE APPORTIONMENT OF LOSS AND 

other offices for $7,000 besides, making the total sum 
Insured $12,000. Both buildings were damaged by- 
fire, and this company has paid five-twelfths of the 
loss on the old building. The question presented and 
decided below was as to the mode of adjusting the 
loss, and by agreement the same question is presented 
here. (See Record 8.) 

"If the new building alone had burned, this insur- 
ance company would not have been bound for any 
part of the loss, because that building was not em- 
braced in her policy. If the old building alone had 
burned she would have been liable for only five- 
twelfths of the loss, not exceeding the sum by her 
insured. Now when both buildings burn, if a rule of 
adjustment is fixed whereby this company pays more 
than if the old building alone had burned, to that 
extent she is made to pay for the loss on the new 
building which is not embraced in her policy. 

"The other underwriters can not justly complain 
of the mode of adjustment proposed above. As to 
them, the risk is a unit. Their policies embrace both 
buildings as a whole, and they have no more right 
to apportion their risk on the constituent parts of 
the building insured than upon its rooms or stories. 
Let the loss fall upon what part or parcel it may, 
they must make good their contract with Cromie. 
True, their pro rata might be larger, if the other 
alone burned, for in the first case the contribution 
would be by sevenths, and in the last by twelfths; 
but this results from their contract, and truly this 
insurance company is not an underwriter for them. 

Statement of Attorneys for Appellant. 

*'The other insurers insist that the following is the 
true mode of adjustment: Deduct the loss on the 
new building from the sum by them insured, and then 
compute the loss on the old building as if the bal- 
ance left was the sum by them insured on the old 
iDuilding. The objection to this mode is, as has been 
shown, that the sum to be paid by this insurance 
•company is made to depend not only on the burning 
of the new building, but on the extent of that loss, 
although her policy does not cover the new building. 

"Either mode is just to Gromie, for by either his 
loss is made good to the extent of the sum insured. 
The struggle is to make one insurer pay a part of the 
loss due from another, by such an adjustment as will 
compel him to respond to a loss where he has not 
assumed a risk. 



CONTRIBUTION OP COMPOUND INSURANCE. 67 

"The case of Liscom vs. Boston Mutual Fire Insur- 
ance Company, 9 Met. 205, seems to favor our posi- 
tion, and Howard Insurance Company vs. Scribner, 
5 Hill, 208, is claimed to be even stronger for 
Cromie. 

"In this last case there was an insurance in the 
Aetna Company on fixtures and stock togehter for $5,- 
000, and another in the Howard Company for $1,000 on 
fixtures and $3,000 on stock. The Howard policy con- 
tained the usual clause of proportionate liability in 
the case of other insurance. Held, That the assured 
was entitled to recover the whole amount of the lat- 
ter policy without reference to the first. This deci- 
sion is pointedly condemned by Phillips, 1 Treat, on 
Law of Ins. (3d ed.) 204, and seems to the writer to 
be a plain violation of common sense. If the fixtures 
alone had been destroyed, the Howard Insurance 
Company would have been liable for one-sixth only, 
and if the stock alone had been destroyed, she would 
have been liable for three-eighths only. Now, if 
these sums do not make up that for which she is 
liable when fixtures and stock are both destroyed, 
the whole is greater than its parts taken together. 
As to any hardships thus resulting to the assured, 
Phillips justly remarks that it is to be ascribed to 
his own folly, and he must bear the inconvenience; 
for, having agreed to a stipulation in the policy 
against double insurance, introduced for the benefit 
of both parties to that policy, it would be a violation 
of all principle that he should be permitted to defeat 
its operation in favor of the insurer, by the form of 
his contract with a third party, (lb.) 

"Without being apprised, so far as we know, of 
the decision in this case. Judge Pirtle, on the author- 
ity of Howard Insurance Company vs. Scribner, re- 
cently decided against our view of the law in this 
case; but he gave no reason, and it is very certain 
that this mere opinion is not entitled to more weight 
than Judge Bullock's and Phillips'. Phillips was not 
cited to him. 

"We ask an affirmance. 

Decision. 

"Chief Justice Marshall delivered the opinion of 
the Court: This petition alleges that on the 26th 
day of May, 1851, Cromie, the plaintiff, took insur- 
ance from the defendants in the sum of $5,000, to 
continue six years upon his building, known as the 
Louisville Paper Mill, after having previously in- 



68 THE APPORTIONMENT OF LOSS AND 

sured $2,000 on the same building in the Howard 
Insurance Company of New York, and $1,000 in the 
uEtna Insurance Company of Hartford, Conn., as 
shown by entries made by defendants before their 
policy was delivered. That afterwards, in the year 
1852, he erected an addition to said building, esti- 
mated at $4,000, and being desirous to increase the 
insurance to about $12,000 on the old building and 
the addition, he obtained insurance from the Protec- 
tion Insurance Company to the amount of $2,000, 
on both the old and new building, and from the Co- 
lumbia Insurance Company of Charleston for $2,000, 
covering the old and new building, and the Howard 
and -^tna companies extended their policies so as to 
cover the old as well as the new building. Of all 
which, the defendants, as he avers, were duly in- 
formed and consented thereto, and agreed that their 
policy should not be vitiated thereby, as appears by 
entries and indorsement on the same, made by them. 
And that the entries as to the insurances by the Pro- 
tection and the Commercial Insurance Companies 
were made by defendants in November or December, 
1852, after they had notice of the insurance in said 
companies, as above. The plaintiff further alleges 
that on December 26, 1862, the building, insured by 
defendants, and also said addition, were burned; that 
he sustained loss on the former of at least $8,377.63, 
and on the latter of at least $1,122.37; that he noti- 
fied said defendants of the loss on December 28, 1852, 
and that they did not determine to rebuild — under 
their privilege of doing so — nor paid said $5,000, but 
have only paid $3,490.67, and refuse to pay more. 
Wherefore, he asks for judgment for such part of 
said $5,000 as he may be entitled to, etc., and other 
proper relief. 

"(1.) The policy executed by the defendants is re- 
ferred to as filed with the petition, and makes a part 
of the record before us. It accords with the state- 
ment of it in the petition, except that the reference to 
the other policies does not state that they include the 
addition, or anything not covered by the policy of the 
defendant. But the petition states that the defend- 
ants were duly notified of the facts stated with respect 
to the other policies, and that they themselves made 
entry thereof upon their own policies, and it may be 
assumed that they were notified that the other poli- 
cies covered the addition as well as the original 
building. The policy executed by the defendants 
contains, however, no stipulation for the apportion- 



CONTRIBUTION OP COMPOUND INSURANCE. 69 

ment of loss with the other insurers, or for any 
abatement on account of prior or other policies. And, 
as it seems to be the rule that where there is no 
such stipulation, the insured, though entitled to but 
one satisfaction, may recover judgment against either 
set of insurers to the extent of the loss so far as cov- 
ered by their policy, leaving them to claim contribu- 
tion from the other insurers, it is immaterial to the 
result of the present action, and is only material as 
between the different insurers, or in a subsequent 
action against others, whether all the policies cover 
precisely the same property, or if they do not, what 
ratable portion of loss should follow each in ease of 
the destruction of that property which is insured 
by all. 

"(2.) The rule above stated is laid down by Phil- 
lips in his work on insurance (Vol. 1, p. 326, od. of 
1823) as follows: 'But if the subsequent policy con- 
tain no provision in respect to prior insurance, the 
amount of insurable interest for such policy will be 
the same as for the first, for the insured may insure 
again and again, the same property if he will pay 
the premiums. But he can recover only one indem- 
nity; this he may recover against the first or sub- 
sequent underwriters, and those who pay the loss 
may demand a proportionable contribution from other 
insurers.' The doctrine is again referred to in Vol. 
2, p. 224; and pp. 387 and 496. It is explicity stated 
that in case of double insurance the assured may 
recover, against' any one set of underwriters, the 
whole amount insured by them, not exceeding that of 
the loss, and that either one who pays more than 
his proportion of the loss may recover a ratable re- 
imbursement from the others. And on the page last 
cited, it is said again that in case of double insur- 
ance the assured may recover against either set of 
underwriters the whole amount insured by them. 
But if a part has been recovered against one set, 
only the excess can be recovered against the others. 
And in Ellis on Insurance, side pp. 13-14, as pub- 
lished in Vol. 4 of the Law Library, it is said that, 
'even without a special condition of the policy, a party 
insured, effecting a double insurance, can only re- 
cover the real amount of his loss, and if he sues one 
insurer for the whole, the insurer may compel the 
others to contribute their proportional parts;' evi- 
dently implying that he may recover the whole from 
the one whom he sues. 

"Under this rule, as laid down by these authors, 



70 THE APPORTIONMENT OF LOSS AND 

for which reference is made to various adjudged 
cases cited by them, and which is entirely analog- 
ous to the principle commonly applied at law to 
cases in which several persons are bound in dif- 
ferent instruments for the performance of the same 
thing, we are of opinion that the plaintiff in this case 
has the right to a judgment against the defendants 
for the whole amount of loss covered by their policy, 
leaving them to settle with the other companies the 
proportions of the loss which ought to be borne by 
each, unless in the present case the plaintiff is will- 
ing and intends to limit his recovery to the sum 
for which the defendants, as between themselves 
and the other companies, would ultimately be liable 
as their proportion of the loss; of which there is 
certainly no decisive or sufficient indication in the 
petition. It follows, from the view we have taken of 
the rights of the plaintiff in this action, that the 
petition shows a right of action and of recovery for 
the difference between the sum paid by the de- 
fendants and the entire amount of five thousand dol- 
lars, which they insured on the original building. 
And, although we decline to determine in the pres- 
ent suit the proportions for which each of the com- 
panies is liable for the loss on the original building, 
which alone was insured by the defendants, 
while the other companies insured also the addition, 
we are of opinion that even if the plaintiff's recov- 
ery in this case should be restricted to the propor- 
tionate liability of the defendants on their policy, 
he has shown a right to recover from them more 
than five-twelfths of the amount of their policy, 
which is as much as they have paid; and which 
would be the extent of the proportional liability if 
the original building alone were insured by all the 
policies, amounting in the aggregate to $12,000, with- 
out taking into consideration the loss falling upon 
the other insurers, on account of the additional build- 
ing covered by their policies, and which has suffered 
detriment by fire to the amount of more than $1,100, 
which they must pay. The amount of this loss, at 
least, should be deducted from their policies before 
their aggregate amount is brought into the calcula- 
tion by which the proportional liability of each is to 
be ascertained. Whether there should not be a 
greater deduction on account of their xjontinuing 
liability for loss which may yet occur on the addi- 
tional building covered by their policies, we need 
not, and do not decide, nor indeed have we the neces- 
sary data for such a decision. 



CONTRIBUTION OF COMPOUND INSURANCE. 71 

"But as in any view of the case, the petition shows 
a right of action and of recovery to the extent, it 
should have been adjudged good on demurrer, and 
the court erred in sustaining the demurrer and ren- 
dering judgment against the plaintiff. 

"Wherefore, the judgment is reversed and the 
cause remanded, with directions to overrule the de- 
murrer, and for further proceedings." 

I will now take up the case you have submitted,, 
and apportion the compound insurance according to 
the Griswold Rule. 

Statement. 

Continental— On wheat, $2,500; loss, $3,000. 

Continental— On corn, $3,000; loss, $4,000. 

Continental— On oats, $2,000; loss, $8,000. 

Aetna — On grain, $5,000. 

Home— On grain, $6,000. 

The Aetna and Home policies, being the compound 
insurance, are to be made specific on the basis of the 
losses. Three-fifteenths of each covers on wheat; 
four-fifteenths of each covers on corn, and eight-fif- 
teenths of each covers on oats. 

Apportionment on Wheat. 

Continental insures $2,500 

Aetna insures 1,000 

Home insures 1,200 

Total insurance $4,700 

Loss $3,000 

Apportionment on Corn. 

Continental insures $3,000 

Aetna insures 1,333 

Home insures 1,600 

Total insurance $5,933 

Loss $4,000 

Apportionment on Oats. 

Continental insures $2,000 

Aetna insures 2,667 

Home insures 3,200 

Total insurance $7,867 

Loss $8,000 

Under this apportionment on oats we get an in- 
surance of $7,867, with a loss on oats of $8,000. This 



72 THE APPORTIONMENT OF LOSS AND 

apportionment will pay the losses in full on wheat 
and corn, and give the companies a salvage of $3,633, 
and the assured loses $133 on the oats. This neces- 
sitates a re-apportionment. The insurance exceeds 
the loss by $3,500, and therefore the loss must be 
paid in full. 

It does not very often happen in the regular work 
that we have to resort to a re-apportionment. 

We must now take from the former compound, 
but now specific insurance, covering wheat and corn, 
$133, and add it to the former compound, but now 
specific, insurance on oats. 

From Apportionment on Wheat. 

Aetna insures » $1,000 

Home insures 1,200 

Total .$2,200 $2,200 

From Apportionment on Corn. 

Aetna insures $1,333 

Home insures 1,600 

Total ...$2,933 $2,933 

Total $5,133 

The total former compound, but now specific, in- 
surance on wheat and com is $5,133. 

2,220/5,133 of $133, or $57 must be taken from the 
former compound, but now specific, insurance on 
wheat, and 2,933/5,133 of $133, or $76, has to be taken 
from the same class of insurance on com. 

The $57 which we take from the Aetna and Home 
insurances on wheat and add to the same companies' 
insurances on oats is 1,000/2,200 of $57, or $25.91, from 
the Aetna, and 1,200/2,200 of $57, or $31.09, from the 
Home. 

1,333/2,933 of the $76 on com, or $34.54, of the 
Aetna insurance, and 1,600/2,933 of the $76, or $41.46, 
of the Home insurance on corn is to be taken from 
the insurance of these companies and added to the 
same companies' insurance on oats. 

Another way to ascertain the amount of the former 
compound, but now specific, insurance to be taken 
from wheat and corn to make good the deficiency of 
insurance on oats, is to take 1,000/5,133- of $133, or 
$25.91, from the Aetna insurance on wheat; 1,200/- 
5,133 of $133, or $31.09, of the Home insurance on 
wheat; 1,333/5,133 of $133, or $34.54, of the Aetna 



CONTRIBUTION OP COMPOUND INSURANCE. 73 

insurance on corn, and 1,600/5,133 of $133, or $41.46, 
of the Home insurance on corn, making a total of 
$133. 

Re-Apportionment and Contribution on Wheat. 

Continental Insures $2,500.00 Pays $1,615.34 

Aetna insures 974.09 Pays 629.39 

Home insures 1,168.91 Pays 755.27 



Total insurance $4,643.00 Pays $3,000.00 

Re-Apportionment and Contribution on Corn. 

Continental insures $3,000.00 Pays $2,048.84 

Aetna insures 1,298.46 Pays 886.76 

Home insures 1,558.54 Pays 1,064.40 



Total insurance .... $5,857.00 Pays $4,000.00 

Re-Apportionment and Contribution on Oats. 

Continental insures $2,000.00 Pays $2,000.00 

Aetna insures 2,727.45 Pays 2,727.45 

Home insures 3,272.55 Pays 3,272.55 

Total insurance $8,000.00 Pays $8,000.00 

Continental pays on wheat $1,615.34 

Continental pays on corn 2,048.84 

Continental pays on oats 2,000.00 

Total loss paid $5,664.18 

Aetna pays on wheat $629.39 

Aetna pays on corn 886.76 

Aetna pays on oats 2,727.45 

Total loss paid $4,243.60 

Home pays on wheat $755.27 

Home pays on corn 1,064.40 

Home pays on oats 3,272.55 

Total loss paid $5,092.22 

Continental pays $5,664.18 

Aetna pays 4,243.60 

Home pays 5,092.22 

Total loss paid $15,000.00 

After an apportionment has been made, the amount 
of the former compound, but now specific, insurances 
to be taken from any item for a re-apportionment, 
must not reduce the total insurance on the item to 



74 THE APPORTIONMENT OF LOSS AND 



less than the loss. If it should reduce the insurance 
below the loss, then only the excess of insurance 
above the loss should be taken, and the remainder 
should be taken from the other item, if there is any. 

AVERAGE CLAUSE— DISTRIBUTION FORM. 

It is understood and agreed that the amount in- 
sured by this policy shall attach, in each of the above 
named premises, in that proportion of the amount 
hereby insured, that the value of property covered by 
this policy, contained in each of said places, shall 
bear to the value of such property contained in all 
of the above named premises. 

The effect of this clause is to make the insurance 
specific in the different locations, or on the different 
classes of property covered by the insurance. To 
apply this clause produces the same results as it 
would if we applied the Reading Rule. As this clause 
and the rule have been fully explained herein by 
example, it is unnecessary to repeat it here. When 
this clause is applied the amount of insurance it fixes 
on each class of property, or in each location, is the 
specific insurance, and each amount is the maximum 
contributive liability. 

Under this clause, if we have two buildings valued 
at $16,000, one worth $10,000, and the other $6,000, 
with $12,000 insurance, we readily understand that 
this $12,000 insurance becomes specific on each build- 
ing as the value of each building bears to the value 
of both buildings. Six-sixteenths, or $4,500, covers 
on one building, and ten-sixteenths, or $7,500, covers 
on the other building. These two items are specific 
insurance, the same as if these figures had been set 
forth in the policy in the place of using the Average 
Clause. 

LIMITATION CLAUSES. 

In every insurance policy there are two limits of 
liability. One is the contributive liabilit3% and the 
other is the loss liability. The contributive liability 
is the maximum amount which a policy can be called 
on to contribute from to pay a loss. The loss liabil- 
ity is the amount the company can be compelled un- 
der the conditions of the policy to pay. The contrib- 
utive liability and the maximum loss liability are not 
always the same. The contributive liability is the 
limit of insurance named in the policy, providing 
there is onlj^ one item insured and no average clause 



CONTRIBUTION OF COMPOUND INSURANCE. 75 



— distribution form — on the policy. If there are two 
or more items insured specifically, then the amount 
insured on each is the contributive liability. The 
loss liability is limited in every policy to the actual 
amount of loss, but not exceeding its contributive 
liability, and in some policies by the use of limita- 
tion clauses it is limited to not exceeding a stated 
amount, or a certain percentage of the sound value 
or loss. 

The three-fourths value, three-fourths loss, average 
and co-insurance clauses are a special contract made 
between the assured and the company having the 
limitation clause on its policy. Under the form of 
policies now being used no company is entitled to 
the benefit of a clause unless it is on its policy. These 
limitation clauses are the sources of considerable 
trouble when there is other insurance without the 
same kind of clause. When there is no additional 
insurance, or if there is other insurance and it is 
concurrent, the clause can be easily applied and the 
results intended to be secured by its application can 
be quickly determined. 

It is first absolutely necessary to determine what 
the effect of the clause on the policy is. Whether it 
limits the contributive liability, by fixing the amount 
of insurance on each item, or whether it reduces the 
loss liability to an amount less than the contributive 
liability, and makes no change in the amount of the 
contributive liability. 

There are several kinds of limitation clauses, and 
they may be divided into three classes. 

Class^Number One. 

The first is where the clause fixes a maximum 
limit of loss liability, which is the basis for contri- 
bution to be made by all the insurance, as provided 
by the pro rata contribution clause. In these cases 
the loss liability is determined first, and the contri- 
bution is made afterwards. 

Class Number Two. 

The second is where the basis of contribution is 
the total loss, and the liability of each company is 
fixed in its policy. The contribution is made first, 
and the limitation clause applied afterwards, in these 
cases. 

Class Number Three. 

The third is where the liability of each company is 
fixed by its contract, regardless of the pro rata con- 
tribution clause, and the other insurance. 



76 THE APPORTIONMENT OF LOSS AND 



I will give an example of an adjustment of a claim 
under each one of the various limitation clauses. I 
will first take a case where the policies are concur- 
rent, and then take the same case and make some of 
the policies non-concurrent, as we frequently find 
them, and make the apportionment and contribution. 

Class Number One. 

This class fixes a maximum limit of loss liability 
which is the basis for contribution, to be made by 
all the insurance as provided by the pro rata contri- 
bution clause. 

The three-fourths value, three-fourths loss, and all 
limitation clauses which fix a basis of contribution 
and make the amount which is the basis for contri- 
bution the maximum liability of all the companies, 
are of this class. 

THREE-FOURTHS VALUE CLAUSE. 

It is a part of the consideration of this policy, 
and the basis upon which the rate of premium is 
fixed, that in the event of loss this company shall 
not be liable for an amount greater than three-fourths 
of the actual cash value of the property covered by 
this policy at the time of such loss, and in case of 
other insurance, whether policies are concurrent or 
not, then for only its pro rata proportion of such 
three-fourths value. 

Statement. 

Continental, on building $5,000.00 

Aetna, on building 5,000.00 

Each of the policies had on it the three-fourths 
value clause. The loss was $9,000. The value of the 
building was $11,000. Three-fourths of $11,000 is 
$8,250, which is the basis of contribution, and the 
maximum limit of liability of all the companies. 

Apportionmen't and Contribution. 

Continental insures $5,000 Pays $4,125 

Aetna insures 5,000 Pays 4,125 



Total loss paid $8,250 

By the application of this clause, the assured does 
not receive his full loss, though his insurance was 
$1,000 more than the total loss. He does, however, 
receive all he should, under the contracts he made. 
There is in this case no arbitrary apportionment. 



CONTRIBUTION OP COMPOUND INSURANCE. 77 

Statement. 

Continental, on building $5,000 

Aetna, on building 5,000 

The loss is $9,000. Three-fourths value clause on 
Continental policy. 

The value of the building was $11,000. Three- 
fourths of $11,000 is $8,250. The difference between 
$9,000, the loss, and $8,250, three-fourths of the value, 
is $750. This $750 is covered only by the Aetna 
policy, which Is the compound insurance. 

This class of cases comes under the Cromle rule, 
and are easily disposed of when fully understood. I 
will apply the rule to this case, which will bring out 
the point clearly. 

The policy with the three-fourths value clause on 
it covers an undivided three-fourths of the described 
property, and the undivided one-fourth is, if there is 
other insurance, without this clause, an interest cov- 
ered only by the compound insurance. The one- 
fourth interest which the policy, with the three- 
fourths clause on, does not cover, is covered by the 
other insurance, which does not have the three- 
fourths value clause in the contract, and it is the 
compound insurance. 

Apportfonment and Contribution on One-Fourth 

Interest. 

Aetna insures $750 Pays $750 

Total loss paid $750 

Apportionment and Contribution on Three-Fourths 
Interest. 

Continental insures $5,000 Pays $4,459.46 

Aetna insures 4,250 Pays 3,790.54 

Total loss paid $8,250.00 

Aetna pays one-fourth interest $750.00 

Aetna pays three-fourths interest 3,790.54 

Total loss paid $4,540.54 

Continental pays $4,459.46 

Aetna pays 4,540.54 

Total loss paid $9,000.00 

THREE-FOURTHS LOSS CLAUSE. 

This clause is a limitation of the loss liability of 
all the companies to three-fourths of the loss, and the 



78 THE APPORTIONMENT OF LOSS AND 

three-fourths of the loss is the basis of contribution. 
Each company pays its pro rata proportion of this 
amount as provided by the pro rata contribution 
clause. This clause deals entirely with the amount 
of the loss. In all other respects its application is 
the same as that of the three-fourths value clause. 

The three-fourths loss clause produces a limit of 
loss liability, and though the clause differs from the 
three-fourths value clause, it would, if there was 
other insurance without the clause, be covered by the 
rule made by the court in the Cromie case. The 
three-fourths loss clause is so little used now it is 
unnecessary to apply it to an actual case. It makes 
no difference what the percentage of limit of loss 
liability is. The rule can and should be applied in 
every case. 

LIVE STOCK LIMITATION CLAUSE. 

. There are several kinds of live stock limitation 
clauses, but those that are of this class (Class Num- 
ber One) are short and differ in the wording, but all 
of them have the same meaning. "No animal to be 
valued above $100" and "The total loss on any ani- 
mal not to exceed $200," are the common forms of 
this clause. 

The limit named in this clause is the maximum 
limit of loss liability of all the insurance. This 
limit is the basis of contribution, but the contribu- 
tion is made from the total insurance, according to 
the pro rata contribution clause. 

Statement. 

Continental — On horses $1,500 

Aetna — On horses 1,000 

No horse to be valued above $500 is the limitation 
of liability. The one horse killed was worth $750. 

Apportionment and Contribution. 

Continental insures $1,500 Pays $300 

.Aetna insures 1,000 Pays 200 

Total loss paid $500 

The insured, though he has insurance for $1,750 
more than his loss, receives $250 less than the loss. 
In this case the assured has surrendered and con- 
tracted away his right to recover his full loss. He 
has limited his right of recovery from all the com- 



CONTRIBUTION OP COMPOUND INSURANCE. 79 

panies to not exceeding $500. There is no arbitrary 
apportionment of the insurance, so that there would 
be no chance for a court to increase this amount un- 
less it nullified the limitation clause. 

Statement. 

Continental — On horses $1,500 

Aetna — On horses 1,000 

There is no limitation clause on the Continental 
policy. No animal to be valued above $500 is the 
limit fixed in the Aetua policy. The value of the 
one horse killed was $750. 

We have here non-concurrent insurance. The pol- 
icy of the Continental is compound insurance. The 
liability for all the insurance, as fixed by the limita- 
tion clause in the Aetna policy, is $500, and to this 
extent the policies are concurrent. There is a lia- 
bility here which is covered by the Continental pol- 
icy alone, and it is $250, which is the difference be- 
tween $750, the loss, and $500, the maximum limit 
of loss liability for all the insurance, as fixed by the 
Aetna policy. 

Apportionment and Contribution on Interest 

Covered Only by the Continental. 

Continental insures $250 Pays $250 

'i*otal loss paid $250 

The amount of the Continental policy has been re- 
duced $250, the amount apportioned to pay its undi- 
vided liability, which leaves $1,250 to contribute with 
the $1,000 policy of the Aetna to pay the $500, the 
liability of both companies. 

Apportionment and Contribution on Interest 
Covered by Both Companies. 

Continental insures $1,250 Pays $277.77 

Aetna insures 1,000 Pays 222.23 

Total loss paid $500 

Continental pays under first apportionment. . .$250.00 
Continental pays under second apportionment. 277.77 



Total loss paid $527.77 

Continental pays ^ $527.77 

Aetna pays 222.23 



Total loss paid $750.00 



80 THE APPORTIONMENT OF LOSS AND 

This case, because of the compound insurance, re- 
quires an arbitrary apportionment, and it comes 
within the scope of the Cromie Rule. I have applied 
the Cromie Rule in this adjustment. 

Class Number Two. 

If the total loss is the basis of contribution, and 
the liability of each company is fixed in its policy by 
a special limit, the clause belongs to this class. 

This class includes the ordinary live stock clauses 
where the liability of the company is limited to not 
exceeding a stated amount, or three-fourths of the 
value. 

LIVE STOCK LIMITATION CLAUSE. 

It is hereby expressly provided and mutually 
agreed, that in no case (except in the case of more 
valuable animals insured specifically hereunder by 
names and numbers) shall this company be liable for 
more than $75 on any one Horse or Mule, nor for 
more than $35 on any Colt under two years old: nor 
for more than $20 on any Colt under one year old; 
nor for more than $30 on any one head of Cattle, nor 
for more than $15 per head if under two years old; 
nor for more than $3 on any one Sheep, or $10 on 
any one Hog; nor in any case for more than the 
actual cash value of the animal of any class destroyed 
or damaged. 

This live stock limitation clause is found in all of 
our farm policies and applications. The first ques- 
tion that arises is. What is the limitation effect of 
this clause? Is it a loss limitation only, or is it a 
maximum of loss limitation and contributive 
liability? 

This clause is a maximum limitation of loss lia- 
bility. The amount named as the limit of liability 
on each class of animals is the limit of the loss lia- 
bility on the animal of that class, and the total in- 
surance is the maximum contributive liability. 

At first it seems more reasonable to consider it a 
maximum limitation of loss and contributive liabil- 
ity, but after applying it to several cases as such, 
and studying the result and probable complications 
that may arise, I am satisfied it is simply intended 
as a limitation of loss liability. 

Reduced Rate for Live Stock Insurance. 

In consideration of the acceptance by the assured 
of the following clause and his agreement that the- 



CONTRIBUTION OF COMPOUND INSURANCE. 81 

same shall be made a part of his policy, a reduction 
in the rate of premium on live stock has been al- 
lowed from 3 per cent, to 2 per cent. The clause 
referred to is as follows, viz: It is a part of the 
consideration of this policy, and the basis upon which 
the rate of premium is fixed, that in case of loss on 
any particular kind of live stock, claim for same 
shall not exceed three-fourths of the value of such 
animal killed, and shall not exceed the limit on such 
animal as specified in this policy. 

This clause simply limits the liability. If an ani- 
mal is worth $40, this clause makes a limit of $30, 
and the effect of this clause is the same as it would 
be if the limit in the policy was $30. 

In this class of cases there is no arbitrary appor- 
tionment. The contribution to be made on each ani- 
mal is provided for in the pro rata contribution 
clause. The pro rata contribution is made first, and 
the limitation clauses, if practicable, are applied 
afterwards to determine the actual liability of each 
company. 

Statement. 

Continental— On horses $200 Limit $75 

Aetna — On horses 500 No limit. 

The loss was one horse worth $210. 

Apportionment and Contribution. 

Continental insures $200 Pro rata liability $60 

Aetna insures 500 Pro rata liability 150 

Total pro rata liability $210 

The application of the pro rata contribution clause 
fixes the loss of the Continental at $60, and as this 
is less than the limit, the limitation clause does not 
apply. The liability of the Aetna is made $150, and 
as this exceeds its special limit of liability, the lim- 
itation clause must be applied, and it makes the loss 
$75. 

Continental pays $60 

Aetna pays 75 

Total loss paid $135 

This limitation clause is a special contract made 
between the assured and the company, and it becomes 
operative only when the contribution to be made by 
any company, under the pro rata contribution clause, 
exceeds the limit. 



82 THE APPORTIONMENT OF LOSS AND 

We sometimes have cases where the limits of loss 
liability on each animal are different. I will apply 
the rule to a case of this kind: 

Statement. 

Continental — On horses $200 Limit $75 

Aetna — On horses 500 No limit. 

One horse, valued at $210, was killed. 

Apportionment and Contrfbution. 

Continental insures $200 Pays $60 

Aetna insures 500 Pays 150 

Total loss paid $210 

The pro rata liability of the Continental is $60, 
which is less than its limit. The Aetna has no limit, 
therefore it must pay $150. In this case the assured 
receives his full loss. 

The case I will call your attention to now is the 
same as the last, except that there are three compa- 
nies and three different limits. 

Statement. 

Continental — On horses $300 Limit $75 

Aetna— On horses 500 Limit 100 

Home — On horses 500 No limit. 

The loss was one horse killed, worth $400. 

There are three companies and one has a limit of 
liability of $75, one of $100, and the Home has no 
limit. 

Apportionment and Contribution. 

Continental insures . . .$300 Pro rata liability $92.30 

Aetna insures 500 Pro rata liability 153.85 

Home insures 500 Pro rata liability 153.85 

Total pro rata liability $400.00 

The liability of the Continental is limited to $75, 
and that of the Aetna to $100, and the Home has no 
special limit 
The companies would pay as follows: 

Continental pays $75.00 

Aetna pays 100.00 

Home pays 153.85 

Total-loss paid $328.85 

I will apply this rule to another case which may 
come up under this live stock limitation clause. 



CONTRIBUTION OP COMPOUND INSURANCE. 83 

Statement. 

Continental — On horses $300 

Aetna — On horses 500 

Home — On horses 500 

Aetna and Home have no limit, but the Continental 
has a limit of $75 on horses, and $35 if under two 
years of age. 

There was one horse killed, worth $280, and one 
colt killed, worth $150, which was under two years 
old. The total loss being $430. 

Apportionment and Contribution. 

Continental insures . . .$300 Pro rata liability $99.24 

Aetna insures 500 Pro rata liability 165.38 

Home insures 500 Pro rata liability 165.38 



Total pro rata liability $430.00 

In this pro rata contribution I have made the total 
loss on the horse and colt the basis of contribution. 
"VVe can not tell from this contribution whether the 
Continental contributes more than $75 on the horse 
and $35 on the colt, or not. In order to avoid the 
mistakes that might result from this form of state- 
ment, I would suggest that the contribution be made 
on each animal. 

Apportionment and Contribution on Horse. 

Continental insures ...$300 Pro rata liability $64.62 

Aetna insures 500 Pro rata liability 107.69 

Home insures 500 Pro rata liability 107.69 



Total pro rata liability $280.00 

Apportionment and Contribution on Colt. 

Continental insures ...$300 Pro rata liability $34.62 

Aetna insures 500 Pro rata liability 57.69 

Home insures 500 Pro rata liability 57.69 



Total pro rata liability $150.00 

The limit fixed by the Continental policy was $75 on 
the horse and $35 on the colt. In the statement 
showing the pro rata liability of the Continental 
there is $64.62 on the horse, and $34.62 on the colt 
Both of these amounts are less than the limits, and 
amount to $99.24. 



84 THE APPORTIONMENT OF LOSS AND 



Continental pays on horse $64.62 

Continental pays on colt 34.62 

Total loss paid $99.24 

Aetna pays on horse $107.69 

Aetna pays on colt 57.69 

Total loss paid $165.38 

Home pays on horse $107.69 

Home pays on colt 57.69 

Total loss paid $165.38 

Continental pays $99.24 

Aetna pays ^ 165.38 

Home pays 165.38 

Total loss paid $430.00 

There are cases, sometimes, which require our at- 
tention that are very badly mixed. Where the poli- 
cies are different. Where no two of them are con- 
current. The Supreme Court of Wisconsin decided a 
case of this kind, and as it will be a good opinion to 
study, I will make it a part of this communication. 

The case of Sherman vs. Madison Mutual Insurance 
Company, which was decided by the Supreme Court 
of Wisconsin February 1, 1876, undoubtedly involves 
a more complicated state of facts than you will ever 
find in your work. 

Statement. 

The Madison Mutual Insurance Company covered 
$1,500 on cattle, with no limitation clause. The Con- 
tinental Insurance Company had a line of $1,667 on 
cattle, being not to exceed $500 on any one animal. 
The North Missouri Insurance Company carried $1,- 
667 on cattle, and no one animal to he valued at more 
than $500. 

There was a loss on one bull, valued at $2,000, and 
three steers, worth $336. 

Decision. 

"The defendant company issued three policies of 
insurance to the plaintiff, of five hundred each, on 
stock. A loss having occurred, the defendant paid 
the plaintiff $724.96 on account thereof, claiming that 
to be the extent of its liability. The plaintiff claimed 
that its liability exceeded that sum, and brought this 
action to recover such excess. The complaint is in 
the usual form of such complaints on fire insurance 



CONTRIBUTION OF COMPOUND INSURANCE. 85 

policies. As defenses to this action it is alleged in 
the answer: 1. That the policies contained cove- 
nants that they should be void if the plaintiff pro- 
cured other insurance on the property, and failed to 
give notice thereof to the defendant, and have the 
same endorsed on the policies, and that the plaintiff 
obtained other insurance thereon, but failed to give 
such notice. 2. That if the policies are valid there 
was other insurance on the property, and under the 
usual clause, that in case of loss the defendant should 
be liable only for a proportionate share thereof, it 
has already paid its share of the loss in full. 

"The cause was tried by the court without a jury, 
and on the trial witnesses called by the plaintiff tes- 
tified to computations produced by them of the 
amount of the defendant's liability on the policies in 
suit, and also testified as experts to the rule for ad- 
justing the loss. 

"The judge subsequently filed his findings of fact 
and conclusions of law therefrom, and ordered judg- 
ment for the plaintiff in accordance therewith. Judg- 
ment as above directed was entered for the plaintiff, 
and the defendant has appealed therefrom. 

"It only remains to determine whether the county 
court correctly adjusted the plaintiff's loss. The ad- 
justment is contained in the tenth finding of the fact, 
although such finding is substantially a conclusion 
of law, and must be treated as such. 

"The live stock destroyed exceeded in value the 
amount of the risk taken thereon by the defendant, 
and but for the other insurance thereon, the defend- 
ant would be liable to pay the whole risk. The 
clause in the policies which reduces such liability is 
as follows: 'In all cases of other insurance upon the 
property, whether prior or subsequent to the date of 
this policy, in case of loss or damage by fire, the 
insured shall not be entitled to demand or recover 
on this policy any greater portion of the loss or dam- 
age sustained than the amount hereby insured bears 
to the whole amount insured on said property.' The 
clause itself furnishes the rule of adjustment in rea- 
sonably plain terms, and there should not be much 
difficulty in the application of the rule to particular 
cases. Where there are several risks upon the same 
property, giving the amount of each and the loss, it 
is an easy process to apportion the loss to the several 
risks. 

"It is said on behalf of the defendant that the ag- 
gregate of insurance on the live stock was $4,833.33 



86 THE APPORTIONMENT OP LOSS AND 

and the loss $2,336, and that the amount of defend- 
ant's liability is a mere problem in proportion, which 
may be stated and solved thus: $4,833.33 : $1,500 : : 
$2,336 : $725. This process makes the defendant lia- 
ble only for the sum which it voluntarily paid before 
the action was commenced, and if correct, defeats the 
action. But is it correct? The plaintiff is entitled 
to full indemnity for his loss; that is, he is entitled 
to receive from the three companies who insured his 
live stock $2,336. That is a right which he has paid 
for, and has not surrendered or stipulated away. It 
is entirely clear that the liability of the North Mis- 
souri Company (stated in round numbers) is only 
$288, and of the Continental but $616. So the for- 
mula given on behalf of the defendant falls short of 
full indemnity to the plaintiff over $700. Hence it is 
incorrect, and the error in it is very apparent. 

"It is true that the plaintiff had insurance to the 
amount of $4,833.33 on his steers, and also his bull, 
valued at $500, and to that extent the above formula 
is entirely applicable. But he had not that amount 
of insurance on the residue of the value of his bull. 
On such residue the North Missouri had no risk 
whatever; the Continental had a risk limited by its 
contract with the plaintiff to $500 on the bull, which 
left only $327.50 on the residue of his value over 
$500, and the defendant, after deducting its propor- 
tion of the loss on the steers and on the bull valued 
at $500 (being $260) had a risk of $1,240 on such 
residue. So instead of having an insurance of $4,- 
833.33 on $1,500 of the value of his bull, the plaintiff 
had only $1,567.50 insurance thereon. Suppose, in- 
stead of losing one bull worth $2,000, the plaintiff 
had lost two bulls, one worth $500, the other worth 
$1,500; and suppose also that the North Missouri pol- 
icy did not include the latter, and that the liability 
of the Continental on both bulls was limited to $500, 
the rule for adjusting the loss between the three 
companies would be perfectly plain. They would pay 
pro rata for the steers and the $500 bull. The Con- 
tinental would pay $327.50 of the value of the other 
bull, and the defendant would be liable for the bal- 
ance thereof, being $1,172.50. 

**We think the case supposed and the one under 
consideration are identical in principle and resulta, 
and that the learned county judge correctly adjusted 
the liability of the defendant for the plaintiff's loss. 

"We construe the contracts before us, and adjust 
and determine the liability of the defendant, in the 



CONTRIBUTION OF COMPOUND INSURANCE. 87 

light of legal principles as we understand them, with- 
out resorting to the opinions of the experts, yet we 
use their computations precisely as a court may use 
a computation of the amount due on a promissory 
note, verified by a witness on the stand. It is unnec- 
essary, therefore, to determine whether the rule of 
adjustment in this or any other case may be proved 
by the testimony of experts. 

"Judgment affirmed." 

Sherman vs. Madison Ins. Co., 39 Wis. 104. 

This case was reported in the Insurance Law Jour- 
nal, and the publisher added the following note to 
the opinion: 

Note. — As this case is of special importance to ad- 
justers, the following explanation will make it more 
intelligible. Company (1) insures on live stock, 
$1,500. Company (2) insures on live stock, $1,667, 
'being not to exceed $500 on any one animal.' Com- 
pany (3) insures live stock, $1,667, 'no one animal to 
be valued at more than $500.' Loss, one bull, $2,000, 
and three steers, $336; total, $2,336. 

"The adjustment of the court may be stated thus: 
Total insurance on steers and on bull, valued at $500, 
$4,834, on which all pro rate as follows: 

Bull at $500. Steers. 

Company (1) pays '. $155 $105 

Company (2) pays 172 116 

Company (3) pays 172 116. 

"Leaving Company (2) $328 of unexhausted insur- 
ance on the bull, which is applied to the excess of 
value above $500; the remained of that excess, $1,- 
172, is to be borne by Company (1), making the total; 
I)ayment of each as follows: Company (1), $1,432; 
Company (2), $616; Company (3), $288." 

Sherman vs. Madison Mutual Insurance Company, 
5 Ins. Law Journal 285. 

I do hot give you a copy of the Sherman case be- 
cause I think it a correct adjustment of this claim. 
It is a complicated case, and therefore a good one to 
study. 

The adjustment of this claim necessitates consid- 
ering the conditions of three policies, each one of 
which is subject to a different rule, to determine its 
liability. 

The policies (there were three of them) of the 
Madison Mutual did not contain any special limita- 
tion clause. Its liability, then, was a pro rata pro- 



58 THE APPORTIONMENT OF LOSS AND 

portion of the loss, as provided by the pro rata con- 
tribution clause. If all of the insurance had been of 
this class, the adjustment would be easy. 

The policy issued by the Continental was like those 
of the Madison Mutual, except that it contained this 
clause: ''Being not to exceed $500 on any one ani- 
mal.'' This policy is liable for its pro rata proportion 
of the loss, but not exceeding the limit of $500 for 
any one animal. In this class of cases the pro rata 
liability is determined first, and if the liability on 
any one animal exceeds the limit, the limitation 
clause is applied. This policy belongs to what I call 
Class No. 2. 

The North Missouri had a policy, same as those of 
the Madison Mutual, except that it contained the fol- 
lowing limitation clause: "No one animal to he val- 
ued at more than $500.'" This class of insurance is 
described in what I have called Class No. 1. The lia- 
bility of this company is its pro rata proportion of 
the loss, but the loss, which is the basis for contri- 
bution, must not exceed $500 on any one animal. The 
maximum liability of all the insurance is fixed first 
in these cases, and then the liability of each company 
is ascertained by applying the pro rata contribution 
clause. 

In making a statement of this case, I will call the 
whole insurance $4,834. 

You probably have noticed that the court made all 
of the insurance ($4,834) contribute to pay $500 on 
the bull, which was the maximum limit of contribu- 
tion fixed in the North Missouri policy, and $336 on 
the three steers. As the bull was worth $2,000, there 
is an interest of $1,500 in the bull, which, for the pur- 
pose of adjusting the liability of the North Missouri, 
the court entirely ignored. The court applied what 
I have herein named the Chicago and Hartford rules. 
The court did not do justice to the Madison Mutual. 
This company, with $1,500 insurance, is made to 
•contribute from $2,740, and the Continental, with a 
policy of $1,667, is treated as if it were a policy of 
:$3,046. The insurance of the Madison Mutual and 
Continental is compound. These companies cover the 
$1,500 interest in the bull, which is not covered by the 
North Missouri. These two companies must pay this 
$1,500. This feature of the adjustment comes within 
the scope of the Cromie rule. An amount of the two 
policies equal to the loss must be apportioned as the 
insurance to pay the loss. 



CONTRIBUTION OP COMPOUND INSURANCE. 89 

We have a claim of $1,500, and the two companies, 
with $3,167 of insurance, must furnish the insurance 
to pay this amount. The Madison Mutual should fur- 
nish 1,500/3,167 and the Continental 1,677/3,167. 

Apportionment. 

Madison Mutual, on $1,500 interest $710.46 

Continental, on $1,500 interest 789.54 

Total insurance $1,500.00 

You will notice that the Continental is called on 
for $789.54 insurance, and, under this apportionment, 
would have to pay the same amount. It can not do 
it, as its limit is $500. It is evident that $1,000 of 
the Madison Mutual and $500 of the Continental in- 
surance must satisfy this $1,500 claim. 



Re-Apportionment and Contribution on $1,500 
Interest. 

Madison Mutual insures $1,000 Pays $1,000 

Continental insures 500 Pays 500 

Total loss paid $1,500 

The Madison Mutual now has $1,500 insurance on 
$500 interest in bull and on the steers. The Conti- 
nental has paid its limit of loss liability on the bull, 
and now has $1,167 insurance on the steers. The 
North Missouri has $1,167 insurance on the $500 in- 
terest in the bull and on steers. 

The insurance remaining, as stated above, should 
be apportioned as provided in the Griswold Rule, and 
the $500 of the Madison Mutual insurance, and $1,- 
167, the amount of the North Missouri policy, should 
be made specific on the bull and steers, as follows: 
500/836 covering bull and 336/836 being apportioned 
to the steers. The Madison Mutual would have $299.- 
04 on bull, and $669.99 on steers. 



Apportionment and Contribution on $500 Interest In 
Bull. 

Madison Mutual insures $294.04 Pays $115.36 

North Missouri insures 997.01 Pays 384.64 



Total loss paid $500.00 



90 THE APPORTIONMENT OP LOSS AND 

Apportionment and Contribution on Steers. 

Madison Mutual insures $200.96 Pays $33.13 

Continental insures 1,167.00 Pays 192.41 

North Missouri insures 669.99 Pays 110.46 

Total loss paid .$336.00 

Madison Mutual pays under first apportion- 
ment $1,000.00 

Madison Mutual pays under second appor- 
tionment 115.36 

Madison Mutual pays under third apportion- 
ment 33.13 



Total loss paid $1,148.49 

Continental pays under first apportionment... 500.00 
Continental pays under third apportionment. 192.41 

Total loss paid 692.41 

North Missouri pays under second appor- 
tionment 384.64 

North Missouri pays under third apportion- 
ment 110.46 

Total loss paid $495.10 

Madison Mutual pays $1,148.49 

Continental pays 692.41 

North Missouri pays 495.10 

Total loss paid $2,336.00 

It will not do to assume, for the purpose of fixing 
the liability of the North Missouri, that the whole . 
insurance covered only the property and interest it 
was pro rata liable for. There was $1,500 of the Mad- 
ison Mutual and Continental policies that covered 
from the time of the fire on the $1,500 interest in the 
bull, and this is a fact as much as if their policies, 
to the extent of $1,500, had been written specifically 
on this particular interest in the bull. 

Class Nunnber Three. 

This class includes all limitation clauses which fix 
the liability of a company, without reference to the 
other insurance and pro rata contribution clause^ 
This class includes all co-insurance clauses. 

CO-INSURANCE CLAUSES. 

The co-insurance clauses are limitation clauses, and 
they are a specific contract made by the assured and 



CONTRIBUTION OP COMPOUND INSURANCE. 91 

the company which has a co-insurance clause on its 
policy. 

In cases of this class the rule generally applied for 
the purpose of fixing the loss, to be paid by each class 
of companies is to make the apportionment and con- 
tribution of each class as if all the insurance was the 
same. That is, to ascertain what loss the insurance 
with the co-insurance clause should pay, treat the 
case as if all the insurance had a like co-insurance 
clause. I will apply the rule to a case where one 
company has the 80 per cent, co-insurance clause. 

EIGHTY PER CENT. CO-INSURANCE CLAUSE. 

"It is a part of the consideration for this policy, 
and the basis upon which the rate of premium is 
fixed, that the assured shall maintain insurance on 
the property described by this policy to the extent 
of at least eighty (80) per cent, of the actual cash 
value thereof, and that, failing so to do, the assured 
shall be a co-insurer to the extent of such deficit, and 
to that extent shall bear his, her or their proportion 
of any loss, and it is expressly agreed that in case 
there shall be more than one item or division in the 
form of this policy, this clause shall apply to each 
and every item." 

Statement. 

Continental insures $5,000. 
Aetna insures $6,000. 
Home insures $9,000. 

The only policy having the 80 per cent, co-insurance 
clause is the Continental. The loss is $12,000, and 
sound value $40,000. The assured has agreed to carry 
$32,000 insurance or become a co-insurer for the dif- 
ference between the $32,000 and $20,000, the amount 
of insurance which he actually carried, which is 
$12,000. 

Apportionment and Contribution. 

Continental insures $5,000 Pays $1,875 

Aetna insures 6,000 Pays 2,250 

Home insures 9,000 Pays 3,375 

Assured insures 12,000 Pays 4,500 

Total loss paid $12,000 

This shows that the Continental has to pay $1,875, 
which, being five thirty-seconds of $12,000, we know 
it is correct. The Aetna and Home policies did not 



92 THE APPORTIONMENT OF LOSS AND 

have the 80 per cent, co-insurance clause, conse- 
quently they are not entitled to its benefits. 

According to the rule which we are applying, we 
must treat all the policies as if they were like the 
Aetna and Home, to ascertain what amount of loss 
the Aetna and Home should pay. 

Apportionment and Contribution. 

Continental insures $5,000 Pays $3,000 

Aetna insures 6,000 Pays 3,600 

Home insures 9,000 Pays 5,400 

Total loss paid $12,000 

Continental pays .- $1,875 

Aetna pays . 3,600 

Home pays 5,400 

Total loss paid $10,875 

The assured loses, by his failure to have his poli- 
cies concurrent, $1,125. The liability of the Conti- 
nental is limited by a special contract to five thirty- 
seconds of $12,000, the amount of the loss. The lia- 
bility of the Aetna and Home is limited by the pro 
rata contribution clause. There is no arbitrary ap- 
portionment of insurance in this case. 

The Continental, as you will see by the application 
of this rule, is made to contribute $3,000 to pay as- 
sured's full loss. As the liability of the Continental 
is limited by a special agreement with assured to 
$1,875, the assured fails to get his full loss by the 
application of this rule, though the insurance ex- 
ceeded the loss by $8,000. 

Under either the full co-insurance clause or the 
average clause — co-insurance form — we have 100 per 
cent, co-insurance agreement, and it can be applied 
as easily as the 80 per cent, co-insurance clause. 

FULL CO-INSURANCE CLAUSE. 

If, at the time of fire, the whole amount of insur- 
ance on the property covered by this policy shall be 
less than the actual cash value thereof, this company 
shall, in case of loss or damage, be liable for such 
portion only of the loss or damage as the amount in- 
sured by this policy shall bear to the actual cash 
value of such property. 



CONTRIBUTION OP COMPOUND INSURANCE. 9a 

AVERAGE CLAUSE— CO-INSURANCE FORM. 

It is understood and agreed that, in case of loss 
under this policy, the company shall be liable only 
for such proportion of the whole loss as the amount 
of this insurance bears to the cash value of the whole 
property herein described, at the time of the fire. 

Statement. 

Continental insures $5,000. 
Aetna insures $6,000. 
Home insures $9,000. 

The Continental policy has a full co-insurance 
clause, and the others have none. The value of the ' 
described property is $40,000, and there is a loss of 
$12,000. 

I will make the contribution, as I think it ought 
to be made, under a full co-insurance clause. 

Apportionment and Contribution. 

Continental insures $5,000 Pays $1,500 

Aetna insures 6,000 Pays 1,800 

Home insures 9,000 Pays 2,700 

Assured insures 20,000 Pays 6,000 

Total loss paid $12,000 

The liability of the Aetna and Home is fixed by the 
pro rata contribution clause, and in order to ascer- 
tain the liability of these companies, we must con- 
sider the Continental as a co-insurer to the extent of 
$5,000, and leave the assured out. 

Apportionment and Contribution. 

Continental insures $5,000 Pays $3,000 

Aetna insures 6,000 Pays 3,600 

Home insures 9,000 Pays 5,400 

Total loss paid $12,000 

Continental pays $1,500 

Aetna pays 3,600 

Home pays 5,400 

Total loss paid $10,500 

Each one of the companies has paid all its contract 
makes it liable for, and the assured loses $1,500. 



94 THE APPORTIONMENT OF LOSS AND 

LIVE STOCK CO-INSURANCE CLAUSE. 

"It is a part of the consideration of this policy and 
the basis upon which the rate of premium is fixed 
that in case of loss on any particular kind of live 
stock, claim for same shall not exceed such propor- 
tion of said loss as the amount herein insured on 
such particular kind of live stock bears to three- 
fourths of the entire value of that kind of live stock 
owned by the assured at the time of loss, and shall 
not exceed the limit on each animal as specified in 
this policy, nor its value." 

This is a 75 per cent, co-insurance clause, and in 
its application is governed by the same rules applied 
• to the 80 per cent., and full co-insurance clauses. 

I have been able to find but one decision touching 
the point I have herein raised regarding the contri- 
bution between policies when some have and some 
have not a co-insurance clause. This case was lately 
decided by the Missouri Appellate Court. It is the 
case of Armour Packing Company vs. Reading Fire 
Insurance Company, 57 Mo. App. 215. 

In this decision the court held that when there is 
other insurance without the co-insurance clause, the 
purpose and effect of a co-insurance clause is to 
limit the loss liability of a company by fixing the 
maximum contributive liability. If we have a $5,000 
policy with an 80 per cent, co-insurance clause, where 
the sound value is $40,000, and $15,000 additional 
insurance, without a similar co-insurance clause, we 
would have, for the purpose of contribution, $2,777.78 
of specific insurance. 

This $2,777.78 of insurance made specific under a 
policy issued for $5,000, which had an 80 per cent, 
co-insurance clause, because there were other policies 
without the co-insurance clause, is as much an item 
of specific insurance for the purpose of contribution 
as if it were the result of applying the average 
clause, distribution form, or as if it were so stated 
in the policy, if this decision is good law. 

Rule. 

Multiply the amount of insurance having the co- 
insurance clause by the amount of insurance carried 
without the co-insurance clause, and divide the prod- 
uct by amount of additional insurance the assured 
agreed to carry, and the quotient will be the amount 
of specific insurance carried under the co-insurance 
clauses. Each policy with a co-insurance clause will 



CONTRIBUTION OP COMPOUND INSURANCE. 95 

carrj^ such a part of this specific insurance as the 
amount of the policy hears to the total amount of all 
the policies with the co-insurance clause. 

I will first apply this rule to a case where there 
was an 80 per cent, co-insurance clause Involved. 

Statement. 

Continental insures $5,000. 
Aetna insures $6,000. 
Home insures $9,000. 

The Continental policy is the only one with an 80 
per cent, co-insurance clause. The value of the prop- 
erty covered by the insurance is $40,000, and the loss 
is $12,000. The additional insurance carried without 
the 80 per cent, co-insurance clause is $15,000. Eighty 
per cent, of the value of $40,000 is $32,000, which is 
the total amount of insurance the assured agreed to 
carry. 

When we apply the rule we have $5,000, the amount 
of insurance with the co-insurance clause, multiplied 
by $15,000, the amount of additional insurance car- 
ried without the co-insurance clause, equals $75,000,000, 
which, divided by $27,000, the amount of additional 
insurance assured agreed to carry, gives $2,777.78, 
the actual amount of contributive liability of the 
Continental. 

Apportionment and Contribution. 

Continental insures $2,777.78 Pays $1,875 

Aetna insures 6,000.00 Pays 4,050 

Home insures 9,000.00 Pays 6,075 

Total loss paid $12,000 

The liability of the Continental to the assured un- 
der the 80 per cent, co-insurance clause in this case 
is five thirty-seconds of $12,000. As this is $1,875, 
we know the Continental does not suffer by this rule. 

I apply this rule to make plain to you the prin- 
ciple involved in the Armour decision. 

I will apply the rule made by the court in the 
Armour case to determine the liability of the com- 
panies under a full co-insurance clause. 

Statement. 

Continental insures $5,000. 
Aetna insures $6,000. 
Home insures $9,000. 



96 THE APPORTIONMENT OF LOSS AND 



There is a full co-insurance clause on the Conti- 
nental policy, but no co-insurance clauses on the 
policies of the Aetna and Home. The property cov- 
ered by the three policies was worth $40,000, and 
there is a loss of $12,000. The additional insurance 
without the full co-insurance clause is $15,000. The 
amount of insurance the assured agreed to carry was 
$40,000. 

We apply the rule, and have $5,000, the amount of 
insurance with the co-insurance clause, ipiultiplied by 
$15,000, the amount of additional insurance carried 
without a co-insurance clause, gives us $75,000,000, 
which, divided by $35,000, the amount of additional 
insurance the assured agreed to carry, gives $2,- 
142.86. 

Apportionment and Contribution. 

Continental insures $2,142.86 Pays $1,500 

Aetna insures 6,000.00 Pays 4,200 

Home insures 9,000.00 Pays 6,300 

Total loss paid $12,000 

The liability of the Continental, if there were no 
other insurance, would be five-fortieths of $12,000, 
the amount of the loss, and as this is $1,500, we 
know the Continental is not being neglected. 

I have applied the rule made by the court in the 
Armour case to each of the two statements, appor- 
tioned under an 80 and a 100 per cent, co-insurance 
clause. I made the apportionment and contribution 
in each case as I think is right and legal, and then I 
made the apportionment and contribution according 
to the rule of the court in the Armour case. If you 
have carefully read the different apportionments and 
noted the points made in them, you are prepared to 
rcnsider the Armour case. 

I will give you a copy of this case, and will then 
try to explain so that j^ou can understand my objec- 
tion to it. 

Statement of Facts. 

"Respondent had insurance upon certain of its 
property as follows: A policy issued by the Phenix 
Insurance Company of Brooklyn indemnifying re- 
spondent against loss or damage by fire, to an amount 
not exceeding the actual cash value of the property 
described in the policy at the time of loss, and in no 
event to exceed $3,000. The policy contained, among 
others, the following provisions: 



CONTRIBUTION OF COMPOUND INSURANCE. 97 

"It is a part of the consideration of this policy, 
and the basis upon which the rate of premium is 
fixed, that the assured shall maintain insurance on 
the property covered by each item of this policy to 
the extent of at least 80 per cent, of the actual cash 
value thereof, and that, failing to do so, the assured 
shall be an insurer to the extent of such deficit, and 
to that extent shall bear their proportion of any loss. 
* * * In case of other insurance upon the property 
herein described, whether made prior or subsequent 
to the date of this policy, whether valid or not, the 
assured shall be entitled to recover of this company 
no greater proportion of the loss sustained than the 
sum hereby insured bears to the whole amount of 
insurance thereon. 

"A policy issued by the Reading Fire Insurance 
Company of Reading, indemnifying the assured 
against all direct loss or damage by fire to an amount 
not exceeding $1,000. Said policy contained the fol- 
lowing clause: 

" 'Other insurance permitted. This company shall 
not be liable under this policy for a greater propor- 
tion of any loss on the described property * * * than 
the amount hereby insured shall bear to the whole 
insurance, whether valid or not, or by solvent or in- 
solvent insurers, covering such property.* 

"A policy issued by the Knoxville Fire Insurance 
Company of Knoxville, Tenn., insuring respondent 
against loss or damage by fire to the amount of 
$1,000. Said policy contained the following clause: 

" *In no case shall the claim be for a greater sum 
than the actual damage to, or the cash value of, the 
property at the time of the fire, nor shall the assured 
be entitled to recover of this company any greater 
portion of the loss or damage than the amount hereby 
insured bears to the whole insurance on said prop- 
erty, whether such insurance be by specific or by 
general or floating policies, and without reference to 
the solvency or liability of other insurers.' 

''While said policies were in force the property 
insured was damaged by fire to the amount of $2,200, 
and at said time the actual cash value of the property 
covered by said several policies was $10,000, and 
there was no other insurance than that above 
specified. 



98 THE) APPORTIONJVftENT OF LOSS AND 

Decision. 

It is thus seen that the agreement with the Phenix 
Company was that it would insure plaintiff's prop- 
erty to the amount of $3,000, provided plaintiff should 
carry $5,000 more insurance elsewhere, and thus carry 
a total insurance of $8,000. Had these conditions 
been carried out, the Phenix Company would have 
been bound to pay three-eighths of the actual loss, 
$2,200, and the other companies the remaining five- 
eighths. But plaintiff failed to secure the $5,000 
additional insurance necessary to make the total 
amount $8,000, but only succeeded in placing $2,000 
of the required $5,000. Now the question is, under 
these altered conditions, for how much were the 
plaintiffs actually insured in the Phenix Company; 
and what was the whole insurance? If the Phenix 
Company was to insure $3,000 of the risk in case 
the ether companies took $5,000, then when the latter 
only took $2,000 it is plain that the Phenix Company 
only assumed such a proportion to the $2,000 actually 
taken by the other companies as $3,000, the sum the 
Phenix Company originally agreed to take (upon the 
conditions above stated) bears to the $5,000, the 
amount plaintiffs agreed to place with the other com- 
panies. The rest is simply a question of mathemat- 
ics. The problem worked out by the old 'rule of 
three' shows the amount to be $1,200. The total 
amount of insurance, therefore, was $3,200, of which 
the Phenix carried three-eighths, or $1,200, and each 
of the other companies five-sixteenths, $1,000, and in 
such proportion the actual loss should be apportioned 
among the three companies — the Phenix, three- 
eighths, or $825, and the Reading and the Knoxville 
companies $687 each." 

Armour Packing Company vs. Reading Fire Insur- 
ance Company, 57 Mo. App. 215. 

The rule of this case gives the following: 

Multiply $3,000, the amount of insurance with the 
80 per cent, co-insurance clause, by $2,000, the amount 
of insurance carried without the co-insurance clause, 
gives $6,000,000, which, divided by $5,000, the amount 
of additional insurance the assured agreed to carry, 
and you get $1,200. We now have $1,200 for the 
Phenix to contribute from, with the $2,000 other 
insurance, to pay $2,200. 

The apportionment and contribution in this case 
was made with the total insurance and maximum 
contributive liability of the Phenix as $1,200. 



CONTRIBUTION OF COMPOUND INSURANCE. 99 

Apportionment and Contribution. 

Phenix insures ' $1,200 Pays $825.00 

Knoxville insures 1,000 Pays 687.50 

Reading insures 1,000 Pays 687.50 



Total loss paid $2,200.00 

There are two reasons why I consider this decision 
wrong: 

First. The rule made by the court is based on an 
improper and a very unreasonable construction of the 
contracts. In one policy, we have as a part of the 
contract an 80 per cent, co-insurance clause. The 
liability of two of the companies is fixed by the pro 
rata contribution clause. 

Second. The rule gives the assured the full 
amount of his loss, without violating the conditions 
or restricting the application of the 80 per cent, co- 
insurance clause, if the loss does not exceed the 
amount of insurance fixed by the rule for the policy 
with the 80 per cent, co-insurance clause, plus the 
insurance without the co-insurance. If the loss ex- 
ceeds this amount the rule restricts the application 
of the 80 per cent, co-insurance clause and violates 
the most important condition of the clause. 

I can not agree with the statement made by the 
court in this case that the Phenix only insured $1,- 
200, and that this $1,200 is the amount of insurance 
that the Phenix carried — though its policy was for 
$3,000 — because of the 80 per cent, co-insurance 
clause. » The co-insurance clause is not a clause like 
the average clause — distribution form, which fixes a 
maximum limit of insurance and contributive liabil- 
ity, but it is a clause which limits the loss liability. 

In this case the Phenix policy was for $3,000. The 
value was $10,000, and the loss was $2,200. The loss 
liability of the Phenix was three-eighths of $2,200, 
which was $825. The insurance carried by the Phe- 
nix was the same after the fire as before, and that 
was $3,000. 

The court says: "It is thus seen that the agree- 
ment with the Phenix Company was that it would in- 
sure plaintiff's property to the amount of $3,000, pro- 
vided plaintiff would carry $5,000 more insurance 
elsewhere, and thus carry a total insurance of $8,000." 

This statement of the court is not correct. The 
amount of the insurance carried by the Phenix did 
not depend on anything but the plain and simple 
statement in the policy, that in consideration of so 



100 THE APPORTIONMENT OP LOSS AND 

much money to it paid, it insured somebody against 
all direct loss or damage by fire to an amount not 
exceeding a certain number of dollars. 

There is a condition in the co-insurance clause 
which reads: "* * and that, failing so to do, the 
assured shall be an insurer to the extent of such 
deficit, and to that extent shall bear their proportion 
of any loss. * * *" There is no agreement, here, 
that under certain conditions the amount of the 
Phenix policy could legally be changed from $3,000 
to $1,200. The co-insurance clause provides a result 
when the assured fails to carry an amount of insur- 
ance equal to 80 per cent, of the sound value, and 
that is, "* * * * and that failing so to do, the insured 
shall be an insurer to^ the extent of such deficit, and 
to that extent shall bear their proportion of any 
loss. * *" 

If there had been a clause on the Phenix policy 
reading: "The liability of this company is hereby 
limited to such a proportion of the loss as the 
amount insured by this policy bears to 80 per cent, 
of the sound value of the property described in this 
policy" there would be no doubt but that it was 
simply a limitation of loss clause. A clause which 
fixes the liability of the company, independently of 
any other insurance or the pro rata contribution 
clause, as a co-insurance clause does, is a limitation 
of loss liability, and nothing more. In this case 
there were two conditions of the policies to be con- 
strued. One was the 80 per cent, co-insurance clause, 
and the other was the pro rata contribution clause. 
These clauses are not complicated. They are not 
susceptible of two constructions which would give a • 
court authority to apply the construction most favor- 
able to the assured. 

In this case the liability of the Phenix was limited 
by a special contract to three-eighths of the loss. 
The other companies did not have 80 per cent, co- 
insurance clauses on their policies, and therefore 
are not entitled to any of the benefits it provides. 

The policy (see lines 98, 99 and 100) reads:" * * * 
and the extent of the application of the insurance 
under this policy, or of the contribution to be made 
by this company, in case of loss, may be provided 
for by agreement or condition written hereon, or 
attached or appended hereto, * * *" 

Under this clause of the policy any company may 
limit the application of the insurance, or limit its 
contributive liability, but the benefits of any clause 



CONTRIBUTION OF COMPOUNE? I^STSURANCE. 101 

written on — attached or appended tO;-a policy belong: 
only to the company which issued tie policy. 

The liability of the Knoxville and Reading was not 
limited by any special contract attached to their 
policies, but their liability was fixed by the pro rata 
contribution clause, which is a part of the policy. 

. PRO RATA CONTRIBUTION CLAUSE. 

This company shall not be liable under this policy 
for a greater proportion of any loss on the described 
property * * * than the amount hereby insured shall 
bear to the whole insurance, whether valid or not, 
or by solvent or insolvent insurers, covering such 
property. 

This clause limits the liability of the Knoxville 
and Reading with as much effectiveness as the 80 
per cent, co-insurance clause limits that of the Phe- 
nix. The court has no right to ignore either condi- 
tion in this case, unless the statutes of the state 
makes one or the other, or both, void. There is no 
arbitrary apportionment of compound insurance, be- 
cause there was no compound insurance. 

In the case of Page Bros. vs. Sun Fire Office, the 
court made the following statements regarding the 
insurance contract: "It is not our province to make 
contracts for the parties to this suit, or to modify 
those which they have themselves deliberately made, 
because it appears to us that they might have made 
those that would have been more equitable or more 
advantageous. They have made a contract them- 
selves which fixes the amount of the liability of the 
defendant for this loss. This action is founded on 
that contract, and it is the sole measure of the de- 
fendant's liability." 

Page Bros. vs. Sun Fire Office, 25 Ins. Law Jour- 
nal 865. 

This statement of the court is certainly logical, 
and I believe the motive which prompted it should 
govern and control us when considering the Armour 
case, or any similar case. 

The rule made by the court in the Armour case 
has been given and fully explained herein. As I wish 
to call your attention to it for the purpose of further 
criticising it, I will repeat it. 

Multiply the amount of insurance with the 80 per 
cent, co-insurance clause by the amount of insurance 
carried without the co-insurance clause, and divide 
the product by the amount of additional insurance 



102 ^rH:Bj : appjdrtionment of loss and 

the SKseured ap:reed to- carry, and the quotient will be 
the amount of insurance carried by the company with 
the co-insurance clause. 

The one point that is fatal to this rule is that the 
loss does not enter into the problem, when the rule 
is applied, to determine the specific insurance. 

The loss in the Armour case was $2,200, and this 
rule made the total insurance $3,200. If, instead of 
having a loss of $2,200, there had been a loss of 
$3,200 the assured would receive full indemnity un- 
der the application of this rule. The Phenix would 
pay $1,200, which is three-eighths of $3,200. 

I will use the facts in the Armour case, except 
that I will consider the loss $4,800, to explain in 
detail my second objection to this decision. 

Statement. 

Phenix— insures $3,000. 
Knoxville — insures $1,000. 
Reading — insures 1,000. 

The loss is $4,800, and the Phenix policy has an 80 
per cent, co-insurance clause. The other policies have 
no limitation clauses attached. Sound value, $10,000. 

Apportionment and Contribution. 

Phenix insures $3,000 Pays $1,800 

Knoxville insures 1,000 Pays 600 

Reading insures 1,000 Pays 600 

Assured insures 3,000 Pays 1,800 

Total loss paid $4,800 

The liability of the Phenix is fixed at three-eighths 
of the loss, but not exceeding the amount named in 
the policy. As three-eighths of $4,800 is $1,800, we 
know the Phenix is contributing its proportion. 

I will make the apportionment and contribution to 
determine the liability of the Knoxville and Reading. 

Apportionment and Contribution. 

Phenix insures $3,000 Pays $2,880 

Knoxville insures 1,000 Pays 960 

Reading insures 1,000 Pays 960 

Total loss paid $4,800 

In this contribution, where we ignore the limita- 
tion clause in the Phenix policy, the Phenix is made 
to pay $2,880, but as its liability is limited to $1,800, 
it can not be made to pay more. 



CONTRJBUTION OP COMPOUND INSURANCE. 103 

Phenix pays $1,800 

Knoxville pays 960 

Reading pays 960 

Total loss paid $3,720 

Each company has fulfilled its contract obligations 
to the assured, and yet the assured is only receiving 
$3,720 on a loss of $4,800, with $5,000 insurance. 

The rule which the court applied in the Armour 
case fixed the insurance of the Phenix at $1,200. If 
the same rule were applied in this case, we would 
not make any change in the amount of insurance 
carried by the Phenix. We would have, then, $3,200 
of insurance and a $4,800 loss. It must be evident 
to you that this decision is not based on a proper 
construction of the contracts, and that it is a very 
incorrect and improper opinion. 

If we follow the rule made by the court in the 
Armour case, the Phenix would insure only $1,200, 
the Knoxville $1,000, and the Reading $1,000. By 
the terms of the Phenix policy its liability is three- 
eighths of $4,800, the amount of the loss, which is 
$1,800, but the court, if it applied the rule made in 
the Armour case, would say as it insured only $1,- 
200 it can not pay $1,800. When the loss in this 
case exceeds $3,200, the total insurance fixed by the 
court, the rule of the court is in conflict with the 80 
per cent, co-insurance clause. A rule which is appli- 
cable when it involves a $3,000 policy, only when the 
loss does not exceed $3,200, which makes the total 
insurance and contributive liability of a $3,000 pol- 
icy $1,200, and which, if the loss were $8,000 or more, 
would be liable for the full amount of the policy, is, 
it seems to me, a very bad legal proposition. 

I am thoroughly satisfied, after a careful investi- 
gation of the Armour case, that the construction of 
the 80 per cent, co-insurance clause made by the 
court is radically wrong. I was favorably impressed 
with the position taken by the court when I first 
examined the decision, but on a second and more 
careful examination of it I am convinced the decision 
is incorrect. The apportionment and contribution in 
the Armour case should be as follows: 

Apportionment and Contribution. 

Phenix insures $3,000 Pays $825 

Knoxville insures 1,000 Pays 275 

Reading insures 1,000 Pays 275 

Assured insures 3,000 Pays 825 

Total loss paid $2,200 

/ 



104 THE APPORTIONMENT OF LOSS AND ' 

This contribution fixes the liability of the Phenix. 
To get the amount of loss to be paid by the other 
companies, we must make another apportionment, 
and treat the policies as if none of them had a co- 
insurance clause. 

Apportionment and Contribution. 

Phenix . insures $3,000 Pays $1,320 

Knoxviile insures 1,000 Pays 440 

Reading insures 1,000 Pays 440 

Total loss paid $2,200 

This contribution makes the liability of the Knox- 
viile and Reading $440 each. 

Phenix pays .- $825 

Knoxviile pays 440 

Reading pays 440 

Total loss paid $1,705 

The assured receives $1,7^)5 when he has an insur- 
ance of $5,000, with a loss of $2,200. In these appor- 
tionments, each company has contributed its full pro- 
portion, as provided by its contract. The assured, 
however, loses $495. The courts have no right or 
authority to change these contracts made by the as- 
sured and company. 

Since the above was written this question has been 
before the courts of last resort in the states of New 
York and Wisconsin, and the rule which I have 
herein favored has been approved. The two decisions 
are given in full herein, and are as follows: 

Farmers' Feed Co. of New Jersey vs. Scottish Union 
& Nat. Ins. Co. of Edinburgh. 

(Court of Appeals of New York, Jan. 13, 1903.) 

1. A fire insurance policy provided that the com- 
pany should not be liable for a greater portion of any 
loss than the amount insured by its policy should 
bear to the "whole insurance" on the policy. Held, 
That the words "whole Insurance" meant the face 
value of the policy, together with the face value of 
all other policies issued on the same property, and 
in apportioning a loss all other insurance is to be 
included, whether made by another company or by a 
contract between it and the insured, under which, on 
a partial loss, each stands part as a co-insurer. 

2. An insured procured policies on the same prop- 
erty in other companies, providing for the payment 



CONTRIBUTION OP COMPOUND INSURANCE. 105 

of not exceeding a specified sum in case of total loss, 
or in case of partial loss where the insurance 
amounted to 80 per cent, of the cash value of the 
property, the insured agreeing that, if both classes 
and insurance are each less than 80 per cent., to 
take less than the amount of his loss, if a loss occurs, 
and the loss and insurance are each less than 80 per 
cent., the whole amount of insurance is not the 
amount of the actual liability of such companies un- 
der the circumstances, but is the largest sum which, 
under any circumstances, they can be compelled to 
pay, the insured being a co-insurer for the difference 
between the face value of the policies and the amount 
of the actual liability of the insured ; and, though the 
total insurance is greater than the actual loss, he is 
not entitled to recover the whole of such loss, as the 
amount he agreed to bear must be Included in appor- 
tioning the loss. 

3. Defendant insured plaintiff's property to a cer- 
tain amount. The policy contained the usual appor- 
tionment clause. Thereafter plaintiff procured addi- 
tional insurance. Each of the policies issued, in 
addition to the apportionment clause, contained a 
percentage co-insurance clause, providing that in 
event of loss the insurer should be liable for no 
greater proportion thereof than the sum insured 
bears to 80 per cent, of the cash value of the prop- 
erty, nor more than the proportion which the policy 
bore to the whole insurance. Held, That the defend- 
ant insurance company's liability is to be determined 
by the amount of the face insurance of its policy, 
divided by the amount of the total insurance, and 
multiplied by the amount of the loss, and not by the 
amount of the face insurance of its policy divided by 
the sum of the amount of its policy and the actual 
value of the other insurance and multiplied by the 
amount of the loss. 

Appeal from the Supreme Court, Appellate Divi- 
sion, First Department. 

Action by the Farmers' Feed Company of New Jer- 
sey against the Scottish Union & National Insurance 
Company of Edinburgh. From a judgment of the 
Appellate Division (72 N. Y. Supp. 732) affirming a 
judgment for plaintiff, defendant appeals. Reversed. 

Michael H. Cardozo and Edgar J. Nathan, for ap- 
pellant. Martin Paskusz, Henry L. Cohen and Wil- 
liam S. Gordon, for respondent. 

VANN, J. This controversy was submitted upon 
an agreed statement of facts, whicYi, so far as mate- 
rial to the appeal, are as follows: In May, 1898, the 



106 THE APPORTIONMENT OF LOSS AND 



defendant, by a policy of the standard form, insured 
certain buildings belonging to the plaintiff in the 
city of New York against loss by fire for the term of 
three years from the 23d of May, 1898, "to an amount 
not exceeding $60,000." On the 14th of June, 1900, 
such insurance to the amount of $17,500 was can- 
celled by mutual consent, leaving a balance of $42,500 
still in force. The policy contained an apportionment 
clause, which provided that "this company shall not 
be liable under this policy for a greater proportion 
of any loss on the described property * * * than the 
amount hereby insured shall bear to the whole in- 
surance, whether valid or not, or by solvent or in- 
solvent insurers, covering such property, * * *" On 
the 5th of June, 1900, the plaintiff procured other 
insurance on the same property "to an amount not 
exceeding $5,000" in each of the following companies: 
The Springfield Fire and Marine Insurance Company, 
the Providence-Washington Insurance Company, and 
the Westchester Fire Insurance Company, and "to 
an amount not exceeding $2,500" in the Insurance 
Company of the State of Pennsylvania; making $17,- 
500 as the maximum amount for which these four 
companies could, in any event, become liable. Each 
of these policies contained a paragraph headed, "Per- 
centage Co-Insurance Clause," of which the follow- 
ing is a copy: "In consideration of the premium for 
which this policy is issued it is expressly stipulated 
that in the event of loss this company shall be liable 
for no greater proportion thereof than the sum 
hereby insured bears to 80 per cent, of the cash value 
of the pro])erty described herein at the time when 
such loss shall happen, nor more than the proportion 
which this policy bears to the total insurance." On 
the 1st of July, 1900, a fire occurred, by which the 
property insured, the cash value of which was $124,- 
600, was damaged to the amount of $45,321.18, as as- 
certained by an appraisal duly had. The plaintiff 
claims that the amount due from the defendant under 
its policy "by reason of the fire loss" was $38,177.26, 
while the defendant claims that such amount was but 
$32,102.50, which it has paid to the plaintiff under 
an agreement that such payment should be without 
prejudice. The Anpellate Division rendered judg- 
ment in favor of the plaintiff for the difference, be- 
tween these sums, amounting to $6,074.76, with inter- 
est thereon from November 28, 1900. 

The decision of the controversy turns on the mean- 
ing of the words "whole insurance," as used in the 
apportionment clause of the defendant's policy. It 



CONTRIBUTION OF COMPOUND INSURANCE. lOT 

was there provided that the defendant should not be 
liable for a greater proportion of any loss than the 
amount insured by its policy should bear to the 
whole insurance on the property. There is no dis- 
agreement as to the amount of insurance made by 
the defendant's policy, which was absolute, but the 
controversy is over the amount made by the four 
other policies, which were not absolute, owing to the 
co-insurance clause. The defendant claims that the 
whole insurance was $60,000, comprising the $42,500^ 
made by its own policy and $17,500, or the greatest 
sum for which, in any event, the four companies 
could become liable, and that the plaintiff was a co- 
insurer to the extent of the difference between the 
amount for which they are liable and the maximum 
amount for which they might be liable. This would 
reduce the indemnity furnished bj^ the defendant's 
policy from $38,177.26, the amount claimed by the 
plaintiff, to $32,102.50, the amount paid by the de- 
fendant. The plaintiff claims and the Appellate Divi- 
sion held, that under the circumstances "the amount 
of insurance effected by the four policies is identical 
with the amount of the loss, and that the extent of 
that insurance could not be ascertained until after a 
loss, for the insurance was to an amount not exceed- 
ing a stipulated sum, and was, therefore, indefinite." 
This conclusion gives no force to the apportionment 
clause in the defendant's policy where construed in 
connection with the co-insurance clause of the other 
policies. Moreover, all five insurance policies, in- 
cluding that issued by the defendant, are indefinite 
in the same way, for they all make insurance to an 
amount not exceeding a sum named' which is usually 
regarded as the amount of insurance effected. The 
four companies stipulated that they should **be liable 
for no greater proportion" of the loss, which was $45,- 
321.18, "than the sum hereby insured," or $17,500, 
"bears to 80 per cent, of the cash value of the prop- 
erty," which was $99,728. Their liability, therefore, 
is represented by the following proportion: As $99,- 
728 is to $17,500, so is $45,321.18 to the amount re- 
quired, or $7,952.84. Was this "the whole insurance'* 
effected by the four policies containing the co-insur- 
ance clause? If so, that clause has no effect in this 
case. We think it was not, for, if the loss had been 
greater the amount called for by the policy would 
have been greater also, and yet it could not have ex- 
ceeded the amount of the insurance. The largest 
sum which, in any event, can be collected under a 
policy, and not the smaller sum which may be col- 



108 THE APPORTIONMENT OF LOSS AND 

lected under special circumstances, is the amount of 
insurance effected by the policy. There is no limit 
to the possible liability under the four policies, ex- 
cept the amount that the companies stipulated it 
should not exceed, aggregating $17,500, which they 
would have been obliged to pay if the loss had been 
total. Under an open policy, if the loss is less than 
the insurance, the former measures the liability; but 
if the loss is greater than the insurance, the latter 
measures the liability ; yet in either event the amount 
of insurance is the same. The amount of insurance, 
therefore, is the largest sum that the company, under 
the circumstances, according to the terms of their 
policy, can be required to pay. This is the popular 
understanding, as well as the legal definition. The 
test is, what is the extent of the indemnity furnished 
under any possible circumstances. The insurance ef- 
fected by the four policies was for a proportion of 
the cash value of the property less 20 per cent., which 
can always be represented by a fraction, the numera- 
tor being unchangeable, while the denominator may 
vary from time to time. The numerator is the high- 
est amount which the companies could be required to 
pay, while the denominator is 80 per cent, of the 
cash value of the property. The amount of the insur- 
ance does not vary, but the cash value of the prop- 
erty is subject to change; still that change does not 
reduce the amount of insurance. The fact that the 
owner ran his own risk or became his own insurer 
as to the 20 per cent, of the cash value of the prop- 
erty, did not lessen the amount of insurance, because, 
if the less had been total, the whole $17,500 would 
have been due upon the four policies. Thus the ef- 
fect of the co-insurance clause is that, if the property 
is insured to 80 per cent, of its value or more, in 
case of a total loss the whole sum insured becomes 
due; but with insurance for less than 80 per cent, of 
the value, and a loss also of less than 80 per cent., 
the owner becomes, in effect, a co-insurer proportion- 
ately. He could have procured Insurance to 80 per 
cent, of the value, but, not having done so, he be- 
came his own insurer pro tanto. This accords with 
the way the clause is characterized in the policies, 
for it is entitled "Percentage Co-Insurance Clause," 
which means insurance by the company and the 
owner, depending upon the percentage or proportion 
which the insurance bears to the value. The object 
is through lower premiums to induce the owner either 
to take out insurance to 80 per cent, of value, or to 
become a co-insurer with less risk to the company 



CONTRIBUTION OP COMPOUND INSURANCE. 109 

in case of a loss falling below such percentage of 
value. Where either the loss or the insurance equals 
or exceeds 80 per cent, of value, the clause has no 
effect, but when both are less the insured and the in- 
surer bear the loss in certain proportions. The 
amount of insurance is not the variable factor, but 
the amount of loss. The amount of insurance is at 
all times the same, but when the loss is partial the 
insurer stands only a part, unless the insurance is 
for the full percentage, whereas, if the loss is total, 
the insurer stands all, not exceeding the limit stated 
in the policy. That limit is the amount of insurance 
made by the policy, because the company may be re- 
quired to pay to that extent. The words of the co- 
insurance clause, viz., ''the sum hereby insured," in- 
dicate the amount of insurance. That sum is fixed, 
definite, and always the same. It should not be con- 
founded with the actual liability under special cir- 
cumstances, for all open policies are necessarily in- 
definite as to the sum to be paid until the amount of 
the loss is known. The liability can never exceed the 
value of the property, but the insurance may, for a 
house worth but $1,000 may be insured for $2,000. 
If thus insured by two companies, one-half in each, 
and the property was wholly destroyed by fire, 
neither would have to pay $1,000, t'le amount of its 
policy, but only $500, the amount of its liability, 
owing to the apportionment clause. This would be 
true of a standard policy, even if one of the compa- 
nies was insolvent, so that the insured, by taking out 
other insurance, may reduce his security while in- 
tending to increase it. In the case before us the 
plaintiff, by procuring the four policies, reduced his 
security in the event of a partial loss, but increased 
it in the event of a total loss. For the purpose of 
apportionment, the face values of the policies should 
be resorted to, regardless of the cash value of the 
property, and thus the whole amount of insurance 
can be ascertained by a simple inspection of the poli- 
cies. The face value of a policy is not reduced by 
the actual value of the property, or by the duty of 
apportioning the loss, or by the effect of a co-insur- 
ance clause in another policy on the same property. 
The amount of insurance is fixed at the inception of 
the policy, but the amount of liability is not fixed 
until a loss has occurred. The one depends upon the 
sum for which the policy is written, but the other 
depends upon a number of contingencies which may 
or may not happen, and hence can not be known in 
advance. The fact that they are known, and may 



110 THE APPORTIONMENT OF LOSS AND 

never come into existence, does not affect the amount 
of the policy. The question involved is new, and we 
are without controlling authorities to guide us, but 
the discussion of a subject somewhat related in a 
recent case has aided in reaching the conclusion an- 
nounced. Continental Ins. Co. vs. Aetna Ins. Co., 
138 N. Y. 16, 21, 33 N. E. 724. 

It may be asked why, if the whole insurance was 
$60,000, the plaintiff is not entitled to recover his 
entire loss, which was but $45,321.18; and the an- 
swer is that he agreed in a certain contingency to 
stand part of the loss himself. He accepted four 
policies, which provided for the payment to him of 
not exceeding $17,500 in case of a total loss; or in 
case the loss was partial, and his insurance amounted 
to 80 per cent, of the cash value ; buf he agreed that, 
if both loss and insurance were each less than the 
80 per cent., to take less than the amount of his loss, 
and thus became a co-insurer for the difference. The 
defendant, pursuant to its apportionment clause, is 
entitled to the benefit of all other insurance, whether 
made bj^ another company alone or by a contract 
between another company and the insured, by which, 
in case of partial loss, each stands part as a co-insurer. 
We think that the "whole insurance" was $60,000, the 
face value of all the policies, and that the judgment 
appealed from should, therefore, be reversed, and 
judgment ordered for defendant on the merits, with 
costs. 

PARKER, C. J., and GRAY, O'BRIEN, MARTIN, 
CULLEN, and WERNER, J. J., concur. 

Judgment reversed. 

IMPORTANT APPORTIONMENT DECISION. 

Isaac Stephenson et al., Exrs., etc.. 

Appellants, 

vs. 

Agricultural Insurance Company of 

Watertown, New York, et al., 

Respondents. 

Appeals from the Circuit Court for Milwaukee 
County. 

Plaintiffs' testator took out insurance on a build- 
ing situated in the city of Milwaukee, Wis., as fol- 
lows: Agricultural Insurance Company of Water- 
town, N. Y., $5,000; Liverpool and London and Globe 
Insurance Company, $5,000; Continental National In- 



CONTRIBUTION OF COMPOUND INSURANCE. Ill 

surance Company, $5,000; Prussian National Insur- 
ance Company, $2,500; Northwestern National Insur- 
ance Company, $5,000; Milwaukee Fire Insurance 
Company, $5,000, and the Milwaukee Mechanics' In- 
surance Company, $7,500, the policy of the latter com- 
pany, however, containing a provision requiring in- 
surance to be kept upon the property to the amount 
of 80 per cent, of the actual cash value thereof, and 
providing that in case of a failure so to do, and a 
fire occurring, the liability under such policy should 
be limited to the amount that would be apportioned 
thereto in the event of the full amount of insurance 
being carried. The language of the policy in regard 
to the matter was as follows: 

"At the option of the assured, and in consideration 
of the reduced rate of premium charged for this pol- 
icy, the assured hereby agrees to maintain insurance 
during the life of this policy, upon the property 
hereby insured, to the extent of eignty (80) per cent, 
of the actual cash value thereof, and it is mutually 
agreed that if, at the time of the fire, the whole 
amount of insurance on said property shall be less 
than such eighty (80) per cent., this company shall, 
in case of loss or damage less than such eighty (80) 
per cent., be liable for only such portion thereof as 
the amount insured by this policy shall bear to said 
eighty (80) per cent, of such actual cash value of 
such property." 

Other than that stipulation, all ot the policies were 
alike. The form thereof was that of the standard 
policy of this state, one of the provisions being, in 
accordance with 1941-58 R. S. 1898, as follows: 

"This company shall not be liable under this policy 
for a greater portion of any loss on the described 
property or for loss by and expense of removal from 
premises endangered by fire than the amount hereby 
insured shall bear to the whole insurance, whether 
valid or not, or by solvent or insolvent insurers cov- 
ering such property, and the extent of the application 
of the insurance under this policy or of the contribu- 
tion to be made by this company in case of loss may 
he provided for by agreement or condition written 
hereon or attached or appended hereto. Liability for 
reinsurance shall be as specifically agreed hereon." 

While all the policies were in force, the property 
insured was damaged by fire to the amount of $14,- 
169.50. The actual cash value thereof, when the fire 
occurred, was $94,000. Default was made by some of 
the companies as to paying their respective propor- 
tion of the adjusted loss. Suits were thereupon 



112 THE APPORTIONMENT OF LOSS AND 

brought against them, respectively, as follows: 
Against the Agricultural Insurance Company for $2,- 
319.33, with interest; against the Liverpool and Lon- 
don and Globe Insurance Company, for the same 
amount; against the Continental Insurance Company, 
for a like amount; against the Prussian National In- 
surance Company, for $1,159.66. 

The only issue made by the answers, litigated and 
required to be reviewed upon these appeals, is as to 
whether the total amount of the insurance on the 
building when the fire occurred was $35,000 or $30,- 
546.55. In the complaint the latter amount was al- 
leged to be correct, while in each of the answers the 
former was insisted upon. Plaintiffs claimed that the 
$7,500 policy, so-called, was in fact, by force of its 
limitation clause, reduced in proportion to the amount 
of the deficiency of insurance on the property under 
the 80 per cent, clause of the policy. 

Defendants claimed that the policy should be 
counted at its face, $7,500, in apportioning the loss. 
The trial court decided in favor of the latter view, 
and ordered judgments accordingly, which were ren- 
dered, one against each of the companies. A sepa- 
rate appeal was taken from each of such judgments. 

Marshall, J.: This appeal calls for the solution of 
two questions concerning the construction of signifi- 
cant words in this part of Section 1941-58, R. S. 1898: 

"This company shall not be liable under this policy 
for a greater proportion of any loss on the described 
property * * * than the amount hereby insured shall 
bear to the whole insurance, whether valid or not." 

These are the questions: 1. Do the words ''amount 
hereby insured" refer to the face of the policy — the 
maximum amount of risk assured under any or all 
circumstances? 2. Do the words "whole insurance" 
refer to the aggregate of the maximum risks assumed 
by all insurers in respect to the property? Affirma- 
tive answers will lead to an affirmance of the judg- 
ments. 

Courts elsewhere have had the subject before us 
up for consideration to some extent. In respondents* 
favor we are referred to Armour Packing Co. vs. 
Reading F. Ins. Co., 67 Mo. App. Cases, 215, and 
Farmers' F. Co. vs. Scottish Union Nat. Ins. Co. 72 
N. Y. Supp. 752. The language of the insurance con- 
tracts was the same substantially, as here. In the 
first case the effect of a provision like the 80 per 
cent, clause of the Milwaukee Mechanics' Insurance 
Company policy, as regards features of the contract 
similar to those of our standard policy, required by 



CONTRIBUTION OF COMPOUND INSURANCE. 113 



Sec. 1941-58, R. S. 1898, was considered. It was to the 
effect that in case of a loss the part apportioned to a 
particular company should be on a basis of there 
being insurance on the property to the extent of 80 
per cent, of the cash value thereof, and if there was 
not that amount of insurance in fact, that the loss as 
to the deficiency should fall on the insured as a co- 
insurer. The court, in reaching a conclusion, seems 
to have ignored the plain language in that regard. 
It held that the liability of the company was the 
amount of the insurance under the policy; that the 
amount of the insurance was not the face of the pol- 
icy, but the face scaled down in proportion to the 
failure of the assured to comply with the 80 per cent, 
clause; that the reduced amount was the proper sum 
to be considered in adding up the "whole insurance" 
and in apportioning the loss between the several com- 
panies concerned so as to give the assured full in- 
demnity for his loss within the range of the policies. 
That cast a burden on some of the companies which 
the assured expressly stipulated to bear himself, re- 
ceiving a consideration therefor in the form of a re- 
duction of the premium paid. In the second case the 
court held that the amount of insurance was synony- 
mous with the amount of the loss, and the latter 
synonymous with the liability; that a determination 
of the amount of the insurance necessarily waited 
upon the adjustment of the loss. "It might not be," 
said the court, "the maximum amount named in each 
of the policies. How much insurance was effected by 
each policy depended upon the sound value of the 
property covered at the time of the loss, diminished 
by 20 per cent." The policy contained a clause simi- 
lar to that in those under consideration here, and 
required by Sec. 1941-43, R. S. 1898, fixing the amount 
of the insurance at a sum sufficient to cover all loss 
not exceeding a specified amount. The words "and 
not exceeding," etc., specifying the maximum amount 
of the risk assumed, inclined the court to hold that 
the true amount of the insurance was determinable 
only in the event of a loss. We can not agree with 
that view. It seems to violate the plain meaning of 
the language of the policies. We will endeavor to 
show that such is the case. 

In that part of the policy corresponding to Sec. 
1941-43 id., the word "loss" is used, but not as a lim- 
itation upon the amount of the insurance, but primar- 
ily as a limitation upon the amount of the liability. 
This is obvious, since payment of one loss does not 
canrel the policy unless it equals the maximum 



114 THE APPORTIONMENT OF LOSS AND 

amount of risk assumed. If it is less, it is only a 
pro tanto satisfaction of the policy. The company 
remains liable thereafter to be called upon time after 
time during the policy period, the policy being kept 
alive by compliance with its provisions, till an amount 
equal to the face thereof shall have been paid. It 
must follow that the amount of insurance effected by 
a policy is one thing, the amount of the loss in any 
particular instance another, and the liability to pay 
on account thereof another. The amount of the in- 
surance is the maximum amount of the risk assumed 
— the face of the policy; the amount of the loss is 
the adjusted damage by fire to the property covered 
by the policy; the amount of the liability as to any 
particular loss is the amount of the adjusted dam- 
ages properly apportionable to the policy. 

What has been said as to what constitutes the 
amount of the insurance under that part of the stand- 
ard policy as regards Sec. 1941-43, R. S. 1898, applies 
to that part embodying Sec. 1941-58 id. Note the plain 
distinction in the latter section between ''amount 
hereby insured," or "whole insurance," and ''loss": 
"This company shall not be liable under this policy 
for a greater proportion of any loss * * * than the 
amount hereby insured shall bear to the whole insur- 
ance." To say that the terms "liability," "loss" and 
"amount insured," or "whole insurance," are synony- 
mous, or that the amount of the insurance is unde- 
terminable in advance of loss, is well-nigh, if not 
quite, absurd. The language of the section as a whole 
is too plain to admit of any resort to rules for judi- 
cial construction to determine its meaning. As indi- 
cated, "loss" refers to the damages of the assured 
measured in money; "liable," or liability, to the 
amount of such loss which the sufferer, under the 
insurance contract, may recover upon the policy, and 
"amount hereby insured" to the risk assumed under 
the policy — the amount which, regardless of any loss 
paid, remains subject to be drawn upon from time to 
time to satisfy other losses till it shall have been 
wholly exhausted. 

The amount insured on the face or the Milwaukee 
Mechanics' Insurance Company policy is $7,500. It 
was not competent for such company to limit its lia- 
bility so as in any way to vary the insurance con- 
tracts made by respondents. We are unable to see 
any evidence in its policy of an attempt to do so, 
or anything out of harmony with the conclusion we 
have come to. The policy contains ttie same language 
as the other policies respecting the risk assumed. It 



CONTRIBUTION OF COMPOUND INSURANCE. 115 

was limited to a particular sum, $7,500, coupled with 
a condition requiring the assured to carry insurance 
upon the property to the amount of 80 per cent, of 
the cash value thereof or to be deemed himself an 
insurer for the deficiency. That is the effect of the 
80 per cent, clause. The maximum amount of the 
risk was $7,500. The amount of its liability, as be- 
tween it and the assured, but not as between it and 
the other companies, was affected by the 80 per cent, 
clause. The language of the policy indicates that the 
contracting parties understood the result of a failure 
by the assured to take out sufficient insurance to 
equal 80 per cent, of the cash value of the property 
would not be a reduction of the amount of insurance 
affected by the policy, but such a division of any loss 
apportioned to $7,500 out of the whole insurance be- 
tween the company and the assured as would make 
him bear the burden that would otherwise be cast 
upon it by his failure to take out insurance up to the 
limit specified. The words "amount of insurance" 
and ''amount insured" are used in the 80 per cent, 
clause in a way to clearly indicate that they refer to 
the maximum risk assumed, the $7,500. Here is the 
language: "If, at the time of the fire, the whole 
amount of insurance on said property shall be less 
than 80 per cent, this company shall, in case of loss 
or damage less than said 80 per cent., be liable only 
for such portion thereof as the amount insured by 
this policy shall bear," etc. There can be no mistak- 
ing the connection between the significant words in 
that clause and the maximum risk assumed by the 
company and by all the companies. 

There is abundance of authority supporting the 
conclusions that "amount hereby insured," and simi- 
lar expressions as regards a particular policy, mean 
maximum amount of risk assumed; that "the whole 
insurance," and similar expressions as to any given 
parcel of property covered by several policies of in- 
surance, with or without a limitation of liability 
clause similar. to the one in the Milwaukee Mechan- 
ics' Insurance Company policy, mean the aggregate 
maximum risks assumed under all the policies; that 
such a limitation of liability clause in a policy does 
not operate to vary the terms of any other policy, and 
that the effect of such a clause, and the contractual 
purpose thereof, is to make the insured a co-insurer 
to the extent that he fails to place the whole insur- 
ance specified. We will mention in the main only 
cases cited by respondents' counsel: Oshkosh Gas 
Light Co. vs. Germania Ins. Co., 71 Wis. 457; L. and 



116 THE3 APPORTIONMENT OF LOSS AND 



L. and G. Ins. Co. vs. Verdier, 35 Mich. 395; Page vs. 
Sun Ins. Office, 74 Fed. 203; Chesbrough vs. Home 
Ins. Co., 61 Mich. 333; Haley vs. Dorchester M. F. 
Ins. Co., 12 Gray, 545; East Texas F. Ins. Co. vs. 
Coffee, 61 Tex. 287; Good vs. Buckeye M. F. Ins. Co., 
43 Ohio St. 394; Bardwell vs. Conway M. F. Ins. Co., 
118 Mass. 465; Christian vs. Niagara F. Ins. Co., 101 
Ala. 634. In the last case cited the court referred 
to the feature of insurance contracts making the as- 
sured a co-insurer as reasonable, and one that should 
be enforced by courts, rather than avoid by any at- 
tempt to read out of it a justification for a different 
course by rules of judicial construction. In Ches- 
brough vs. Home Ins. Co. there was a limitation of 
liability clause, similar in all respects to the one in 
this case, and the court treated the amount of insur- 
ance affected by the policy, in apportioning the loss 
between different companies, as the face thereof; but, 
as between such company and the assured, held that 
the latter should bear, as a co-insurer, any loss not 
regularly insured against by reason of his failure to 
take out the full amount of insurance agreed upon. 

Our attention is called to the language in 1943a, 
prohibiting the issuance of any policy containing any 
provision limiting the amount to be paid in case of 
loss below the actual cash value of the property, if 
within the amount of insurance for which premiums 
are paid, and prohibiting the use of any co-insurance 
clause or rider except under certain conditions men- 
tioned. We are unable to see how such section ap- 
plies to this case. The policies issued by respondents 
were free from the prohibited features. They contain 
only features expressly required by the standard pol- 
icy law. The circumstances preventing appellants 
from obtaining full indemnity was the Milwaukee 
Mechanics' Insurance Company policy, containing a 
limitation of liability clause pursuant to 1943a, and 
the assured's election to exercise the option therein 
stipulated for to carry a part of the insurance him- 
self. 

The claim is made that by taking the policies to- 
gether the assured was entitled to full indemnity, 
and language to that effect is quoted from Sherman 
vs. Mad. Mut. Ins. Co., 39 Wis. 104. This part of the 
argument of appellants' counsel is Infirm in this: it 
fails to give weight to the fact that in the case cited 
the court held that the assured was entitled to full 
indemnity because that was what he paid for and 
did not stipulate away. Here the assured did stipu- 
late that he would himself bear such part of the loss 



CONTRIBUTION OF COMPOUND INSURANCE. 117 

apportioned to $7,500 of the whole insurance as 
should not be collectible of the Milwaukee Mechanics' 
Insurance Company by reason of the co-insurance 
clause of its policy. To that extent he stipulated 
away the right to full indemnity and received the 
consideration therefor, as we have before indicated. 
That no part of such consideration went to enrich the 
respondents makes no difference, since their own pre- 
mium rates were made with reference to the clause 
of their policies limiting their liability to such pro- 
portion of any loss as the amount of the insurance 
taken by them, respectively, bore to the whole insur- 
ance on the property. They must ve neld liable ac- 
cording to their own contracts, and no further, the 
same as was held in Sherman vs. Madison Mut. Ins. 
Co., supra. 

It follows from the foregoing that the questions 
suggested that the opening of this opinion must be 
answered in favor of respondents and the judgments 
appealed from affirmed. 

By the court: So ordered. 

"RICE'S RULE." 

The following communications have a direct or 
indirect bearing on the rule for apportionment of 
non-concurrent insurance, known as "Rice's Rule": 

AN APPORTIONMENT PROBLEM ANALYSIS. 

An Interesting Exposition of an Apportionment 

Problem, by Willis O. Robb. 

New York, November 19, 1903. 
Eugene Gary, Esq., Manager German-American Insur- 
ance Company, Chicago, 111.: 

Dear Sir — Your letter of the 9th mst., addressed to 
President Kremer, of the German-American, and en- 
closing statement of facts involved in a disputed ap- 
portionment which your own and other offices desire 
to have submitted to me for determination, has been 
forwarded by Mr. Kremer. 

The elements of the problem as you give them are 
as follows: 

Specific 
Value. Loss. Insurance. 

Building A $5,200 $3,854 $3,000 

Building B 5,070 3,380 2,000 



$10,270 $7,234 $5,000 

Buildings A and B, blanket insurance 4,000 



Total insurance $9,000 



118 THE APPORTIONMENT OP LOSS AND 

You say nothing about co-insurance, but presuma- 
bly thie policies do not have full co-insurance clauses, 
at least. 

The only apportionment for double non-concurrent 
cases of this kind that the strict language of the con- 
tribution clause of the standard policy will justify is 
one that many courts, and many insurance companies 
also, hesitate to adopt because it fails to indemnify 
the insured fully, despite the excess of insurance over 
loss. But the contribution clause seems to me to be 
plain in its bearing on this problem, and under it the 
apportionment in the case you have submitted would 
be as follows: 

$3,000 specific insurance on A pays 3-7 of 

$3,854, loss on A, or $1,651.71 

$2,000 specific insurance on B pays 2-6 of 

$3,380, loss on B, or ; 1,126.67 

$4,000 blanket insurance on A and B pays 

4-9 of $7,234, loss on A and B 3,215.11 

Total recovery $5,993.49 

Insured loses 1,240.51 

Whole loss $7,240.00 

In this way, and in this way only, each company 
will pay no greater proportion of the loss on the 
property it covers than its amount constitutes of 
the whole insurance thereon. And that is the clear 
limit of liability fixed by the contribution clause. 

In the case of the Farmers' Feed Co. vs. Scottish 
Union and National Ins. Co., reported on page 162, 
"Insurance Law Journal" for February, 1903, a 
wholly different point was up for decision, but the 
court of Appeals of New York, in deciding it, used 
language that seems to me squarely to cover this 
whole problem of both single and double non-concur- 
rent apportionments — language that certainly indi- 
cates a recation against the practice of violating the 
plain language of the contribution clause for the 
sake of relieving the policyholder from this conse- 
quence of a blunder that is almost always his own or 
his broker's, not that of the companies, who have 
warned him against it in large print on the outside 
of their policies. The court said: 

"The decision of the controversy turns on the 
meaning of the words 'whole insurance' as used in 
the apportionment clause of the defendant's policy. 
It was provided that the defendant should not be 
liable for a greater proportion of any loss than the 



CONTRIBUTION OP COMPOUND INSURANCE. 119 

amount insured by its policy should bear to the 
whole insurance on the property. * * * tj^^ plain- 
tiff claims that the Appellate Division holds that un- 
der the circumstances the amount of insurance * * * 
could not be ascertained until after a loss. * * * 
This conclusion gives no force to the apportion- 
ment clause in the defendant's policy. * * * tj^^ 
largest sum which in any event can be collected un- 
der a policy, and not the ' smaller sum which can 
be collected under special circumstances, is the 
amouiit of insurance effected by the policy. * * * 
The amount of insurance, therefore, is the largest 
sum that the company under any circumstances, ac- 
cording to the terms of the policy, can be required 
to pay. * * * We think that the 'whole insur- 
ance' was $60,000, the face value of the policies. 
* * * It may be asked why, if the whole insur- 
ance was $60,000, the plaintiff is not entitled to re- 
cover his entire loss, which was but $45,321.18, and 
the answer is that he agreed in a certain contingency 
to stand part of the loss himself." 

This case is, on its face, a controlling precedent 
only for apportionments involving some policies with 
and some without a co-insurance clause, which was 
the condition actually before the court. But to me, 
at least, the language here quoted seems perfectly and 
unquestionably applicable to the familiar problem 
of double non-concurrent apportionments, of which 
the case you have referred to me is a typical instance. 
If, therefore, the insured were a party to his submis- 
sion, and there were no binding stipulations to the 
contrary, I should not hesitate to apportion the loss 
as above, believing that no other apportionment will 
give effect to the plain language of the contribution 
clause. But as the insured is not a party to the sub- 
mission in this case, I assume that the companies are 
disposed to waive their rights to the apportionment 
above indicated, and that they mean to pay, among 
them, the whole loss, according to any division I may 
recommend for that purpose. 

Rules Do Not Apply. 

I may as well say at once that none of the many 
rules offered for the solution of this modified form 
of the problem, either by the numerous courts of law 
or by the still more numerous lay authorities who 
have dealt with it, seems to me to be capable of log- 
ical analysis or universal application, and for the 
reason that they are all makeshifts and cowardly 



120 THE APPORTIONMENT OF LOSS AND 

substitutes for the one simple and literal rule pre- 
scribed by the policy language, and already applied 
above. But among these makeshifts I have some 
preferences and some distinct antipathies which have 
guided me in deciding such cases as have been sub- 
mitted to me under the limitation I assume to exist 
in the present instance. 

The rule of gradual reduction, as I may term it, 
by which the blanket policy is made to contribute 
first on its whole amount, along with any specific 
insurance applicable, to pay the loss on one item — 
usually that where the loss is heaviest, either actual 
or in proportion to the amount of specific insurance 
— and then with its balance in like manner in the 
next item, and so on, is unquestionably the one that 
has greatest currency among adjusters and loss 
clerks. The merit claimed for it is the rule that 
mpkes the insured's indemnity go furthest. This 
rule was adopted by the Supreme Court of Errors of 
Connecticut, in Schmaelzle vs. Lancashire Fire Ins. 
Co. The rule, however, is absolutely vicious in the- 
ory and in practice — as a specimen of policy inter- 
pretation, and as a measure of justice. Like the old 
Albany rule, which makes the blanket policy con- 
tribute on its full amount with each of the specific 
insurances, it sacrifices the blanket policy by making 
it contribute, not once, as the contribution clause re- 
quires, but again and again, on at least a portion of 
the same limit of liability. Moreover, when the 
blanket policy has a co-insurance clause, as it has 
more than nine times out of ten nowadays, this rule 
is precisely the one that soonest sacrifices the in- 
sured by trying to saddle on that policy a loss that 
the inevitable application of the co-insurance clause 
will cut in two and let him collect only a portion of 
it — maybe the smaller portion, at that. I therefore 
repudiate the doctrine of the Schmaelzle case, utterly 
and unreservedly, its conclusions, its reasonings and 
its implications all and several. 

An extreme plausible modification of this gradual 
reduction rule is one that is sometimes applicable to 
two or more building items, but not to items com- 
prising, for example, building, machinery and stock. 
It makes the blanket policy contribute first on build- 
ing where fire started, then with its remainder on 
the building next attacked, etc. Unquestionably, if 
two or three successive and independent fires, sepa- 
rated by intervals of a day or even an hour, occurred 
in the several buildings, that apportionment would 



CONTRIBUTION OF COMPOUND INSURANCE. 121 

be right; but this analogy, which is relied on by the 
advocates of the rule, is really very defective, just 
because one fire and one resulting loss under a pol- 
icy are both mathematically and practically different 
from two cases where the damage in one building 
was all done before the fire attacked the next one, 
and so on. 

All things considered, I am quite clear that any 
division of the blanket policy for contribution to the 
several losses, however imperfectly arrived at, is 
preferable to the Albany rule, or to either form of 
the gradual reduction rule just given. And of the 
various rules for dividing the blanket policy, the 
two leading ones are the Reading rule, which divides 
it in the ratio of the valuables of the several classes 
of property covered by it, and the Finn rule, which 
divides it in the ratio of the several losses instead. 
The Reading rule was adopted by the Supreme Court 
of Vermont, in Chandler vs. Ins. Co. of North Amer- 
ica, in a curt and confident opinion that ignores, 
perhaps from real ignorance of, all the struggles of 
the judicial and lay intellect with this problem for 
the greater part of a century, and treats it as if it 
were a newly invented but very futile snare, specially 
set for the feet of justice, in her blindfold progress 
through the Green mountains. The Finn or Gris- 
wold rule, rechristened in recent years the Kinne 
rule, is warmly advocated by Mr. Daniels in his lit- 
tle tract on apportionment, published a year or two 
ago. I do not consider either rule sound or safe. 
I am of opinion that where the blanket policy has 
no kind of co-insurance clause it should be divided 
as a rule in which not values at all and not losses 
alone, but the relation between losses and insurance, 
is the determining factor, and that where it has a 
co-insurance clause of any kind, then the division 
should be determined, not by the losses at all and not 
by values alone, but by the relation between values 
and insurance. The Reading rule is wholly wrong 
unless there is a co-insurance clause in the blanket 
policy, and not quite right then. The Finn or Kinne 
rule is always theoreticallj^ unsound and often prac- 
tically absurd where the blanket policy has a co- 
insurance clause, as it now almost always has; and 
even where there is no such clause the rule is de- 
fective, as was clearly shown by the late Edward F. 
Rice, of the Aetna, in his remarkable paper on "Con- 
tribution in Fire Losses," published in the proceed- 
ings of the Fire Underwriters' Association of the 



122 THE APPORTIONMENT OF LOSS AND 

Northwest in 1880, a paper which almost everybody 
seems to have forgotten now, but which is extremely 
well worth reading still. 

Mr. Rice proposed to substitute a most ingenious 
rule, which for many years I used in cases not in- 
volving the presence of a co-insurance clause, and, 
on the whole, with satisfaction. Assuming that each 
specific policy has an equal right with the others to 
contribution from the face of the blanket policy, but 
that these several rights are conflicting and irrecon- 
cilable, Mr. Rice would ascertain that the over-insur- 
ance or salvage, i. e., excess of insurance over loss, 
would on each item, if the face of the blanket policy 
were applied to each in turn. Then he would so 
divide his blanket policy that its several divisions, 
when added to the several over-insurances (defined 
as before),* bear the same ratio to each other that 
they would if each item got the benefit of contribu- 
tion from the face of the blanket policy. In other 
words, he treated the problems as one in the appor- 
tionment of salvage, and therefore divided the actual 
aggregate salvage, or excess of insurance over whole 
loss, in the same ratio that the separate salvage or 
over-insurance would bear to each other if the blan- 
ket policy covered for its full amount on each item. 
The rule is not so hard to apply as it sounds, and 
the longer one examines it and tests it by applica- 
tion to concrete cases, the more likely one is to ap- 
prove of it. And, at any rate, it is fundamentally 
and unassailably sound in assuming that it is not 
primarily the blanket policy, but the whole excess 
of insurance over loss, that is to be divided; the 
final division of the blanket policy being determined 
by that consideration. 

On the whole, Jioweyer, I now prefer, in the rare 
cases where there is no co-insurance clause at all on 
the blanket policy, and so where the loss and not 
value is the proper determining factor, to simplify 
this rule, and to change its basis by substituting per- 
centages for amounts in dealing with the salvage to 
be apportioned. My rule in such cases is simply to 
divide the blanket policy, so that whenever possible 
and as nearly as possible, the ratio of insurance to 
loss shall be the same on all items. This is cutting 
the Gordian knot with a vengeance, for it usually 
results and would result in this case in making all 
policies pay the same percentage of their face 
amounts. Why not? • The aggregate insurance ex- 
ceeding the aggregate loss, and much of this insur- 



CONTRIBUTION OF COMPOUND INSURANCE. 12a 

ance being of the floater variety, available where 
needed, and the insured having no needs or prefer- 
ences to consult, why should not the insurers take 
pot luck, and share the salvage pro rata? 

(But when there are co-insurance clauses on the 
policies, and especially on the blanket policies, the 
division must be determined primarily by values,, 
not losses; also, theoretically and often practically 
you may expose the insured to loss as a co-insurer 
on a particular item, when he has plenty of insur- 
ance in the aggregate to relieve him of that hard- 
ship, and much of it available wherever needed. 
Here the logic of the situation is simply to so divide 
the blanket policy that its division, when added to 
the respective specific insurance, will, when possible 
and as nearly as possible make the insurance on each 
item bear the same ratio to the value thereof as the 
aggregate insurance on all items bears to the aggre- 
gate value of all, so that a man who has an aggre- 
gate of 80 per cent, insurance (or 50 per cent., or 
120 per cent.) shall, if possible, get credit just for 
that percentage on each item, and suffer or escape 
suffering accordingly.) 

Under these two rules, the first of which I would 
prescribe if there are no co-insurance clauses on any 
of the policies, and the second if there are such 
clauses, the results of the apportionment in your 
case would be to make all policies pay $804.22 per 
$1,000 of insurance, in the absence of the co-insur- 
ance clause, and to make the aggregate payments as 
follows, if the insurance clause is present: 



124 



THE APPORTIONMENT OF LOSS AND 



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CONTRIBUTION OF COMPOUND INSURANCE. 125 

Mr. Rice's rule would have made companies 1 and 
2 pay $800 per $1,000; companies 3 and 4, $808.14 
per $1,000, and companies 5, 6, 7 and 8, $804.43 per 
$1,000; his rule and the one of mine, which assumes 
no co-insurance clauses to be present, working out 
almost identical results for this problem, while my 
rule based on co-insurance clause varies from the 
other two but very slightly in its outcome. 

According as the co-insurance clause is present or 
absent in case submitted, the companies are there- 
fore recommended (reversing the proverbial order 
of exercises) to take their choice and pay their 
money, in accordance with one or the other of the 
two rules here stated. But I would ask them all to 
remember that all of these rules are arbitrary, illog- 
ical and more or less unjustifiable substitutes for 
the plain word of the contract, which is as inter- 
preted at the beginning of this letter; and to join 
with me in expecting and working for the time when 
all the courts and all the adjusters will in all such 
cases give the same force and effect to the clear lan- 
guage of the contribution clause that they now give, 
for example, to that of the co-insurance clause. 

Yours very truly, Willis O. Robb. 

APPORTIONMENT AND CONTRIBUTION OF 
NON-CONCURRENT INSURANCE. 

April 20, 1905. 
Editor ''Rough Notes": 

On the 31st day of last March you published a 
communication from Willis O. Robb, an adjuster of 
fire losses, of New York, addressed to Eugene Cary, 
manager of the Western department of the German- 
American Insurance Company, which was his (Mr. 
Robb's) solution of an adjustment problem submit- 
ted to him for his consideration, where the different 
companies involved could not agree on a rule for the 
apportionment and contribution of non-concurrent 
insurance. 

I have very carefully read and studied this 'Com- 
munication, and it has interested me exceedingly 
much. I am very much pleased to know that you 
are publishing the different rules which have lately 
been used and are being used in the adjustment of 
these complicated problems of non-concurrent insur- 
ance. I anticipate that the publication of such care- 
fully prepared communications, and a proper and 
reasonable discussion of this subject in the insurance 



126 THE APPORTIONMENT OF LOSS AND 

press, will bring the various features of the contri- 
bution of non-concurrent insurance forcibly to the 
attention of the fire insurance people, and that, in 
the near future, it will result in all, or nearly all, 
of the fire insurance companies adopting some gen- 
eral rule for use in the United States in these cases, 
and thereby terminate the controversy which arises, 
in nearly every case, between the adjusters, and 
make it unnecessary for the assured to go to the 
courts and be put to great trouble, expense and waste 
of time to secure an adjustment of his claim. 

The problem submitted to Mr. Robb and made the 
basis of his communication was as follows: 

Statement. 

Sound Specific 

Property. Value. Loss. Insurance. 

Building A '..$5,200 $3,854 $3,000 

Building B 5,070 3,380 2,000 

Totals $10,270 $7,234 $5,000 

Compound insurance on Buildings A and B... 4,000 

Total insurance $9,000 

Mr. Robb says: "The only apportionment for 
double non-concurrent cases of this kind that the 
strict language of the contribution clause of the 
standard policy will justify, is one that many courts 
and many insurance companies, also, hesitate to 
adopt, because it fails to indemnify the assured fully, 
despite the excess of insurance over loss. But the 
contribution clause seems to me to be plain in its 
bearing on this problem, and, under it, the appor- 
tionment in the case you have submitted would be 
as follows: $4,000 blanket insurance on A and B 
pavs four-ninths of $7,234, loss on A and B, or $3,- 
215.11." 

There is no doubt about this proposition that $3,- 
215.11 is the correct and the legal liability of the 
$4,000 compound insurance. 

Pro Rata Contribution Clause. 

"This company shall not be liable under this pol- 
icy for a greater proportion of any loss on the de- 
scribed property * * * than the amount hereby in- 
sured shall bear to the whole insurance, whether 
valid or not, or by solvent or insolvent insurers, 
•covering such property." 



CONTRIBUTION OP COMPOUND INSURANCE. 127 

The compound insurance covers to the extent of 
$4,000 on both buildings, and as the specific insur- 
ance on the two buildings is $5,000, we have a total 
of $9,000 on buildings A and B. When we apply 
the pro rata contribution clause, we find that 4000- 
9000 of $7,234, the total loss, is $3,215.11. This ap- 
plication of the clause ought to end any and all ar- 
gument as to the liability of the compound insurance. 
The courts do not stand by this clause where there is 
non-concurrent insurance, as in this case. 

Mr. Robb says, in this connection, regarding the 
liability of the specific insurance: "$3,000 specific in- 
surance on A pays three-sevenths of $3,854, loss on 
A, or $.1,651.71," The specific insurance on buildings 
A is $3,000, and the loss is $3,854. The compound 
insurance on buildings A and B is $4,000. Mr. Robb 
treats the whole of the $4,000 compound insurance 
on buildings A and B as so much additional insur- 
ance on building A, and gets a total of $7,000 on A 
to pay $8,354 loss. He would apply the same rule to 
building B and make specific insurance of $2,000 pay 
two-sixths of the $3,380 loss, or $1,126.67. 

I contend that the position he has taken as to the 
liability of the specific insurance is radically wrong, 
and it is not in any way substantiated by the pro 
rata contribution clause. 

Mr. Robb says: "In this way, and in this way 
only, each company will pay no greater proportion 
of the loss on the property it covers than its amount 
constitutes of the whole insurance thereon, and that 
Is the clear limit of liability fixed by the contribu- 
tion clause." 

Both of these claims are based on the assumption 
that the full amount of the compound insurance on 
buildings A and B is additional insurance on each 
building. We must now remember that we are con- 
sidering the question of the whole insurance from 
the specific, and not the compound, insurance end 
of the argument. This being the case, the first ques- 
tion that confronts us is, what is the amount of the 
whole insurance on building A? We know there is 
$3,000 specific insurance on building A. Mr. Robb 
contends that all of the $4,000 compound insurance 
is the other insurance, and that the whole insurance 
on building A is $7,000. I must emphatically say 
that, in this case, the whole of the $4,000 compound 
Insurance is not other insurance on building A, be- 
cause, by the terms of the contract, it covers on 



128 THE APPORTIONMENT OF LOSS AND 



buildings A an B, and there is a loss on both 
buildings. 

The contribution clause limits the total contribut- 
ing insurance to that "on the described property," 
and the "described property" is building A. It also 
limits the "whole insurance" to the amount "cover- 
ing such property," and this means the amount "cov- 
ering" on building A, which is all that is meant by 
the words "such property." 

We do not know what proportion of the compound 
Insurance of $4,000, which covers on buildings A and 
B, covers on building A, and we are therefore driven 
by necessity to adopt some arbitrary rule for making 
an apportionment of the compound insurance to de- 
termine the proportion of it which, with the $3,000 
specific insurance, makes the "whole insurance" on 
building A. What I have said regarding building A 
applies, with the same reasoning, to building B. 

It is true that the Court of Appeals of New York, 
in the case of Farmers' Peed Co. vs. Scottish Union 
and National Insurance Company, said: "The largest 
sum which in any event can be collected under a 
noM^'v. and not the smaller sum which can be col- 
lected under special circumstances, is the amount of 
Insurance effected by the policy." The court also 
said: "The amount of insurance, therefore, is the 
largest sum that the company, under any circum- 
stances, according to the terms of the policy, can be 
required to pay." The Supreme Court of Wisconsin, 
in the case of Isaac Stephenson et al. vs. Agricultu- 
ral Insurance Company, approved in every way the 
New York decision. 

These two decisions do not justify the rule 'advo- 
cated by Mr. Robb to determine the liability of the 
specific insurance. In the two cases mentioned all 
policies covered the same property, and in the same 
way, except that some of them had the 80 per cent, 
co-insurance clause attached and some did not. The 
companies whose policy had the limitation clause 
attached contended that the effect of this clause on 
a policy, when there were other policies involved, 
without the limitation clause, was to reduce the 
amount of insurance named in the policies with the 
limitation clause attached. The result was to relieve 
the assured of the restrictive effect of the limitation 
clause by imposing a greater burden on the policies 
without the limitation clause. The assured, by ac- 
cepting policies with the limitation clause attached, 
deliberately stipulated away some of their rights 



CONTRIBUTION OF COMPOUND INSURANCE. 129 

which would exist under a plain policy, and the courts 
in both cases held that they could not so construe 
the contracts as to relieve the assured of the natural 
results of their express and deliberate act by placing 
the burden on the other policies. The case submit- 
ted to Mr. Robb is so unlike the New York and Wis- 
consin cases mentioned herein that it is improper 
and unreasonable for him to refer to them as justi- 
fying his position on the actual liability of the spe- 
cific insurance on buildings A and B. 

We have a loss on each of the two buildings cov- 
ered by the compound insurance, and therefore the 
compound insurance covers for all purposes neces- 
sary to indemnify the assured on both buildings. 
The assured has not made any special contracts by 
which he has stipulated away any of his rights. It 
is true, his insurance is not concurrent. It is also 
true that a part of the $4,000 compound insurance 
covers on building A and a part on building B, and 
not all of it on building A or all of it on building B. 
It is not only unreasonable, but absolutely impossi- 
ble for the $4,000 compound insurance to cover for its 
full amount, for any purpose, on each of the build- 
ings, at the same time, when there is a loss on both 
buildings. If it does, then we have the use of the 
Albany rule fully justified. 

The whole difficulty in this problem is to determine 
the division to be made of the $4,000 compound in- 
surance and ascertain the proportion that should 
cover on each building for the purpose of paying the- 
losses. Any apportionment made of the compound 
insurance must be arbitrary, and the most we caa 
expect or wish for under the present conditions is to 
use the best rule. 

What we need is a rule adopted for general use 
by all the principal fire insurance companies, which 
will, so far as the companies are concerned, fix a 
basis for making the compound insurance specific. 
A rule of any kind for this purpose would not con- 
trol the acts of the courts, but its use by the leading 
companies would reduce, to a very large extent, the 
number of cases of this class reaching the courts. 
A rule for this purpose would not be binding on the 
assured, yet if one were approved and applied by all 
the leading companies, the assured would find very 
little reason to oppose it; and he would not be anx- 
ious, unless it were an aggravating case, to spend 
his money and be annoyed with a lawsuit, and there- 
fore he would, though at some loss, submit to its 



130 THE APPORTIONMENT OP LOSS AND 



application. I do not favor the use of any rule 
which fails to pay the loss in full if the total insur- 
ance is equal to or more than the loss, when it is 
necessary to make an arbitrary apportionment and 
when there are no limitation clauses on the policies. 

If, in this case submitted to Mr. Robb, the loss 
were on building A only, then the liability of the 
$3,000 specific insurance would be three-sevenths of 
the loss, and the compound insurance would pay 
four-sevenths of it. If there were no loss on building 
A, but the loss was all on building B, the $2,000 spe- 
cific insurance would pay two-sixths and the com- 
pound insurance would pay four-sixths of the loss. 
The claim that the liability of the specific insurance 
on each item is the same, whether the loss is on 
one of the items specifically insured, or on both of 
them, covered by the compound insurance, is, in my 
judgment, decidedly wrong and unjust. 

The Supreme Court of Iowa, in the case of the Le- 
Sure Lumber Co. vs. Mutual Fire Ins. Co., held: 

"The policy was designed to secure the plaintiff 
against loss by fire in any or all of the yards to the 
full amount of the policy. It covered all of the 
property which was destroyed, and, if it is paid in 
full, it will not fully compensate the plaintiff for the 
loss sustained. In ascertaining the amount of insur- 
ance, for the purpose of an apportionment, it would 
be just, in the absence of a stipulation to the con- 
trary, to consider only the insurance on the property 
injured or destroyed; and it will be presumed, in the 
absence of a showing to the contrary, that the par- 
ties to the contract intended to provide for a just 
result. The language they used does not necessarily 
mean that in case of loss the defendant should only 
toe liable for such proportion of it as the amount it 
insured was of the total insurance on all the property 
-described in its policy, whether the concurrent in- 
•surance was on all of the property, or only a part of 
it. We think a permissible, and the correct, interpre- 
tation of the policy is that in case of a loss the de- 
fendant was not to be liable for a greater proportion 
©f it than the amount of its policy bore to the total 
insurance on the property injured or destroyed. It 
is true, the words 'described property,' if not modi- 
fied, refer to all of the property covered by the pol- 
icy, and the phrase, 'covering such property,' is 
equally comprehensive; but, considered in their rela- 
tion to the word 'loss' and the purpose for which the 
policy was issued, we are of the opinion that they 



CONTRIBUTION OF COMPOUND INSURANCE. 131 



should be held to refer to property which should be 
injured or destroyed." 

In the case of Page Bros. vs. Sun Insurance Office, 
the United States Circuit Court of Appeals decided: 

"The result is that, under a clause in a policy of 
insurance which provides that the company shall not 
be liable for a greater proportion of any loss on the 
property described therein than that which the 
amount insured thereby shall bear to the whole 
insurance: 

"First. Compound policies, insuring the property 
described in such a policy, and other property, cover 
the property so described to their full amount in 
case of a loss upon the property described in the 
specific policy, and no loss on the other property de- 
scribed in the compound policies. 

"Second. In such a case, the company issuing the 
specific policy is liable for no greater proportion of 
the loss than that which the amount of such policy 
bears to the total amount of both the compound and 
specific policies covering the property it describes." 

I therefore contend that the limit of liability fixed 
by Mr. Robb for the specific insurance is incorrect; 
is not in harmony with the pro rata contribution 
clause; is, in fact, impossible; and that the courts 
are unquestionably correct when they decline to 
construe the policy as he suggests. As to his theory 
of the liability of the compound insurance, I wish 
to say I fully agree with him that it is only four- 
ninths of $7,234, the total loss. This construction of 
the contract ought to be insisted on by the company, 
and the courts should recognize it, though it may 
work an injury to the assured. 

I wish now to call your attention to the adjust- 
ment problem submitted to Mr. Robb, and carefully 
investigate the two rules which he has used, by 
working the problem out in detail under the appli- 
cation of each rule. 

An examination of Mr. Robb's solution of the ad- 
justment problem submitted to him shows that he 
has one rule for cases where there are no limitation 
clauses, and another rule to be used when some or 
all of the policies have a limitation clause attached. 

In case there are lio limitation clauses on the poli- 
cies, he says: "My rule in such cases is simply to 
divide the blanket policy so that, whenever possible 
and as nearly as possible, the ratio of insurance to 
loss shall be the same on all items. This is cutting 
the Gordian knot with a vengeance, for it usually 



132 



THE APPORTIONMENT OP LOSS AND 



results, and would result in this case, in making all 
policies pay the same percentage of their face 
amounts. Why not? The aggregate insurance ex- 
ceeding the aggregate loss, and much of this insur- 
ance being of the floater variety, available where 
needed, and the assured having no needs or prefer- 
ence to consult, why should not the insurers take 
pot luck, and share the salvage pro rata?'* 



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CONTRIBUTION OF COMPOUND INSURANCE. 133 

These results are obtained by dividing the total 
insurance of $9,000 by $7,234, the total loss, which 
gives a percentage of insurance to loss of 1.244124 
plus. This percentage of insurance to loss is multi- 
plied by the total loss on building A, and it gives a 
total insurance on this building of $4,794.86, from 
which we deduct the $3,000 specific insurance to get 
the amount of the compound insurance covering 
building A, which is $1,794.86. By the same system 
of figuring we get $2,205.14 as the proportion of the 
compound insurance covering on building B. 

When some or all of the policies have a limitation 
clause attached, Mr. Robb would, as* he says, do as 
follows: "But when there are co-insurance clauses 
on the policies, and especially on the blanket poli- 
cies, the division must be determined primarily by 
values, not losses; also, theoretically, and often prac- 
tically, you may expose the insured to loss as a co- 
insurer on a particular item, when he has plenty of 
insurance in the aggregate to relieve him of that 
hardship, and much of it available wherever needed. 
Here the logic of the situation is simply to so divide 
the blanket policy that its division, when added to 
the respective specific insurance, will, when possible 
and as nearly as possible, make the insurance on 
each item bear the same ratio to the value thereof 
as the aggregate insurance on all items bears to the 
aggregate value of all, so that a man who has an 
aggregate of 80 per cent, insurance (or 50 per cent, 
or 120 per cent.) shall, if possible, get credit just 
for that percentage on each item, and suffer or es- 
cape suffering accordingly." 

The above rule applied to the problem submitted 
to Mr. Robb produces the following apportionment 
and contribution: 



134 



THE APPORTIONMENT OP LOSS AND 



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CONTRIBUTION OP COMPOUND INSURANCE. 135 

In the claim under consideration we have a sound 
value of $10,270, and a total of $9,000 insurance. By 
dividing the total insurance by the sound value, we 
get a percentage of insurance to sound value of 
.876338 plus, which, multiplied by the sound value 
of building A, gives $4,556.96 as the total insurance 
on building A. If we deduct from this the specific 
insurance of $3,000, it leaves $1,556.96 as the propor- 
tion of the compound insurance covering on building 
A. If we should use $5,070, the sound value of build- 
ing B, in the place of the sound value of building A, 
we get $2,443.04 as the proportion of the comi)ound 
insurance covering building B. 

Under the application of this rule, we get a total 
insurance on building A of $4,556.96, with a sound 
value of $5,200. An 80 per cent, co-insurance clause 
would be inoperative, as the insurance exceeds $4,- 
160, which is 80 per cent, of the sound value. The 
same is true regarding building B, where the total in 
surance is $4,443.04 and the sound value $5,070. 

I infer from the wording of this rule that the lia- 
bility of the compound insurance under a limitation 
clause, if it were operative, would not be determined 
until after the apportionment of the compound in- 
surance is made, based on the sound value of the 
two items specifically insured. I think this incor- 
rect. If the total sound value was $15,000, instead 
of $10,270, the assured, to be fully protected under 
the 80 per cent, co-insurance clause, should have 
$12,000 or more insurance. Having only $9,000 in- 
surance, he would be compelled to stand three- 
twelfths of the loss. This would fix the liability of 
the $4,000 compound insurance at four-twelfths of 
$7,234, which is $2,411.33. This does not in any way 
determine the liability of the specific insurance. The 
compound insurance must be made specific on some 
basis to determine the amount of total insurance on 
each building before we can tell whether the 80 per 
cent, co-insurance clause is operative or not as to the 
specific insurance. 

The assured who has accepted a policy wath an 
80 per cent, co-insurance clause attached has stipu- 
lated away some of his rights if he fails to have, at 
the time of fire, insurance equal to or more than 80 
per cent, of the sound value, and, if the circum- 
stances are such as to make the limitation clause 
operative, and it works to the assured's injury, he 
must suffer. He can not, under any circumstances, 



136 THE APPORTIONMENT OF LOSS AND 

enforce other policies to make good what he loses 
by the co-insurance clause. It was so held in the 
two following cases: 

Farmers' Feed Co. vs. Scottish Union and Na- 
tional Ins. Co., 65 N. W. Reporter 1105; 

Isaac Stephenson et al. vs. Agricultural Ins. Co., 
January 1903, Wis. Supreme Court. 

It is true that in ordinary cases of non-concurrent 
insurance — that is, where there are no special lim- 
itation clauses on the policies — any arbitrary appor- 
tionment of the compound insurance would not be 
approved by the courts if the assured has as much 
or more insurance than loss, unless the assured is 
fully indemnified. 

The questions involved in a case of non-concurrent 
insurance, where there is an 80 per cent, co-insur- 
ance clause on the compound policies, are not the 
same as in cases where there are no limitation 
clauses on them. When the assured accepts a policy 
with an 80 per cent, co-insurance clause, such as is 
used in most states; or with an 80 per cent, reduced 
rate clause, such as is used in Wisconsin; or with 
an 80 per cent, limitation clause, such as is used in 
Michigan, attached, he deliberately and specifically 
stipulates away some of his rights which exist under 
the printed form of policy, and in most cases now 
there is a consideration in the shape of reduced cost 
for this express and specific contract. 

After this examination of the two rules, the ques- 
tion very naturally arises: How generally can they 
be used? In my attempt to determine the matter, 
I applied them to an assumed case, and I found that 
both rules were failures when applied to the follow- 
ing assumed adjustment problem. I give herein the 
assumed case and explain the results as obtained by 
me when applying the two rules as I understand 
them : 

Statement. 

Sound Specific 

Value. Loss. Insurance. 

Stock $59,000 $1,000 $40,000 

Machinery 21,000 20,000 20,000 

Totals $80,000 $21,000 $60,000 

Compound insurance on stock and machinery. 10,000 

Total insurance $70,000 



CONTRIBUTION OP COMPOUND INSURANCE. 137 

If we apply Mr. Robb's rule for the apportionment 
on the basis of the losses, we would divide $70,000, 
the total insurance, by $21,000, the total loss, which 
would give us a percentage of insurance to loss of 
3.333333 plus, which, multiplied by the loss on stock 
of $1,000, gives $3,333.33 as the total specific and com- 
pound insurance on stock. This rule applied to ma- 
chinery gives us $66,666.67 as the total specific and 
compound insurance on machinery. The specific in- 
surance on stock being $40,000, the application of- 
this rule would transfer $36,666.67 of this specific 
insurance from stock to machinery. It would be 
impossible to change the insurance after the fire and 
make any part of the $40,000 specific insurance on 
stock cover on machinery. 

If we make the apportionment, according to Mr. 
Robb's rule, on the basis of the sound values, we 
would divide the total insurance of $70,000 by the 
total sound value of $80,000, and it gives us a per- 
centage of insurance to sound value of .875, which 
multiplied by $21,000, the sound value of machinery, 
gives, as the total specific and compound insurance 
on machinery, $18,275. This rule applied to stock 
gives $51,625 as the total specific and compound in- 
surance on stock. The specific insurance on ma- 
chinery being $20,000, the effect of applying this rule 
would be to transfer $1,725 of the specific insurance 
from machinery to stock. It would be impossible to 
do this after the fire. 

Mr. Robb says, when speaking of the application 
of the rules: "* * * So that, whenever possible, 
and as nearly as possible, the ratio of insurance to 
loss (or value) shall be the same on all items." If 
this means, in cases like this assumed one, to have 
a reapportionment and transfer bodily $36,666.67 of 
the $66,666.67 insurance on machinery to stock, and 
thereby have only the $40,000 specific insurance on 
stock to pay the loss on stock, it would give the 
rule a more general application; but in many cases, 
as in this, the specific insurance on stock w^ould pay 
the whole loss on this item, and the specific insur- 
ance on machinery would pay only two-thirds of the 
loss on machinery. There is no good reason why the 
compound insurance should not contribute in this 
case in payment of a portion of each loss. 

These rules, advocated and used by Mr. Robb, are 
defective the same as many of the others, and that 
is, they are not susceptible of general application. 
They can be used in only a limited number of cases. 



138 THE APPORTIONMENT OF LOSS AND 



These cases where they can be used, I think, would 
be the exception rather than the general rule. If 
they were such as could be generally used (and pro- 
duce equitable results), I would not make any objec- 
tion to them, but, being so much limited in their 
application, and not producing reasonable and fair 
results, I do not think they or either of them should 
be recognized and used. W. H. Daniels. 

APPORTIONMENT OP LOSSES UNDER NON- 
CONCURRENT POLICIES 

( Communication. ) 

July 6, 1905. 
Editor "Rough Notes": 

I have re'ad with deep interest a communication 
from Mr. W. H. Daniels, published in "Rough Notes" 
of April 20th, relative to the adjustment of losses by 
fire under non-concurrent policies; and I heartily 
concur in his hope that the discussion of this vexed 
question may lead to the adoption by most of the fire 
insurance companies doing business in the United 
States of a rule for the apportionment of losses under 
non-concurrent policies, instead of leaving the ques- 
tion to be wrangled over by the adjusters, each con- 
tending for the method that will best subserve the 
interests of the company or companies represented 
by him, for the occasion, and finally compromised or 
settled by a majority vote, contrary to the convic- 
tions of these who may have advocated a more log- 
ical rule to govern the case in question. 

It is not creditable to the calling of fire underwrit- 
ing that some definite rule of contribution between 
non-concurrent policies, which would produce uni- 
formity of practice, has not ere this been agreed 
upon and adopted. It must often strike the assured 
as being incompatible with the idea which the term 
"Adjusting" is intended to convey when he sees its 
votaries disagreeing among themselves as to the 
proper mode of procedure in the settlement of his 
loss. After all, it is of greater importance that 
some definite rule be adopted, than as to the partic- 
ular rule, provided it does not leave the assured 
short of indemnity with unexhausted general policies 
in his possession. Of the various methods of appor- 
tionment current among adjusters, that which makes 
the compound policies first pay the loss on any item 
or items not covered by the specific policies, then 
float with the loss on the remaining items, provided 
this furnishes full indemnity (for on principle all 



CONTRIBUTION OF COMPOUND INSURANCE. 139 

the specific policies are entitled to an equal claim 
for contribution from the compound insurance in the 
proportion of the loss sustained by each). If, how- • 
ever, this does not fully indemnify the claimant, and 
there is general insurance remaining unexhausted, 
then in such case the compound insurance, after 
having satisfied the claim upon it for loss upon 
such item or items not covered by the specific insur- 
ance, is made to float with the loss on items of poli- 
cies having the widest range, and not covered by 
policies of lesser range, then going back on items 
covered by specific policies of lesser range, and so on 
until the compound insurance is exhausted, appeals 
most strongly to me. For I am one of those who 
believe that the amount and subdivision of the loss 
— not the values — govern the liability of the policies 
covering the property damaged or destroyed, be they 
specific or compound, and that the values enter as 
an element into the calculation only when the as- 
sured is affected by the conditions of co-insurance, 
and then only as to the policies containing the co- 
insurance condition. 

I maintain, therefore, that the apportionment be- 
tween the companies, under whatever rule it may be 
made, should first be stated as though there were no 
co-insurance conditions in any of the policies, and 
then apply the co-insurance to such policies as may 
contain it. Mr. W. O. Robb, than whom there is no 
abler adjuster, applies an entirely different rule of 
apportionment in cases where part of the policies 
contain the co-insurance clause, from that which he 
adopts in cases where there is no co-insurance. With 
due regard for the very high respect which I enter- 
tain for his opinion, I am constrained to confess that 
I am unable to appreciate the logic of his reasoning 
in the premises. The discussion should be con- 
ducted in an academical spirit, however, and we 
should all be susceptible to conviction. In no other 
way can we hope to arrive at something to the pur- 
pose that will commend it to the consideration of 
the companies, and receive the sanction of the 
courts. 

Mr. Robb, in his communication to Mr. Eugene 
Carey, under date of November ^ 19, 1903, favors a 
strict technical construction of the language of the 
contribution clause in the standard policy, and he 
considers that the language of the court in the 
case of Farmers' Feed Co. vs. Scottish Union and 
National Ins. Co. justifies such a construction, but he 



140 THE APPORTIONMENT OF LOSS AND 

admits "that many courts, and many insurance 
companies also, hesitate to adopt it because it fails 
to indemnify the insured fully, despite the excess of 
insurance over loss." I agree with Mr. Daniels that 
the language made use of in rendering its decisions 
by the Court of Appeals of New York does not apply 
to the matter under discussion, for it merely decided 
that $17,500 insurance, containing the co-insurance 
clause, was to be regarded as other contributing in- 
surance to its full amount in conjunction with $42,- 
500 insurance not containing the co-insurance stipu- 
lation. The courts hold with remarkable unanimity 
to the doctrine that no apportionment of a loss be- 
tween the insurance companies will be tolerated that 
shall not give the assured full indemnity while any 
part of his insurance applicable to the property cov- 
ered shall remain unexhausted. It is therefore im- 
peratively necessary that this attitude of the courts 
be constantly kept in view while attempting to for- 
mulate some rule that will accomplish the desired 
end. 

In his endeavor to "cut the Gordian knot," Mr. 
Robb, in cases where there is no co-insurance at all 
in the blanket policy, adopts a rule by which he 
divides the blanket policy: "So that whenever pos- 
sible, and as nearly as possible, the ratio of insur- 
ance to loss shall be the same on all items." 

The result of this rule in the following example 
would be as follows: Insurance, $9,000; loss on A, 
$3,854, and on B, $3,380, which gives insurance on 
A, $4,794.86, and on B, $4,205.14, for example: 



CONTRIBUTION OP COMPOUND INSURANCE. 141 



00 >J 



to CO CO CO CO CO 

OO 00 Tt< Tt< rti Tj* 



OOr-li-irHiH 



rt< ^COt^ odoO 

00 « 00 «0 CO CO CO oo 



oo 
oo 


(MC<JtHt-I 

c-c-c-t- 


£ = » 


00 00 00 00 



OOO 
OOO 

ooo 



13 ^ .Th .t3 i^ ^ M M 
OOO o c c^ c 

ft a a niS^^^ 
U2 m m cQ^22rQ 

THc<ieoTj<iis?Dt-oo 

66666666 

>» >i >; >. >i >; >5 >> 

GCCCCCCC 
rt c^ rt d «3 aS rt oi 
ftftftftftftftft 

SSScSSSc 
oooooooo 
OOOOOOOO 



142 



THE APPORTIONMENT OF LOSS AND 



The following would be my method of summarizing 
the above apportionment, assuming a 90 per cent, co- 
insurance clause in the blanket policies, and value 
as given, $10,270: 



6o 




o — 




^^ 








U°^ 




Jo 




-o"^ 




Ceo 




^O 




T3 O 




52 


OO 00 00 00 


MCqNM 


oooo 


«Q M 


CO CO CO CO 



ccooi^oooooooos 
^cot--cocococococo 

00«O0000t-L-t-C- 



./OOOOOOOO 

°2oooooooo 
^oooooooo 



w aj w ,., 
C fi C C 

6 6 6 6 

oooo 



OOOUCCCC 
Q^ Q^ Oi <v ^ ci d a 

iHNCO-^USCOt^OO 

66666666 
^^^^^^^^ 

cccccccc 

cCddddddd 
p^AftUftftftft 

ssssssss 

oooooooo 

oooooooo 



CONTRIBUTION OF COMPOUND INSURANCE. 143 



The foregoing apportionment appears to me very 
much like robbing Peter to pay Paul, for it results 
in making the specific in effect blanket as much as 
the collective, and all pay alike. This is analogous 
to a practice which has obtained among some of the 
marine adjusters. In cases of general average ad- 
justments- under hull policies which waive the one- 
third new for old deduction from repairs, after hav- 
ing made the deduction from the general average 
repairs, they charge back to the hull policies, not 
only the one-third which they have waived, but also 
the one-third deduction which, under the law, has 
accrued to the benefit of the cargo and frieght inter- 
ests; thus causing the underwriters on hull to reim- 
burse the assured for that part of the deduction 
which he has had to stand under a separate and dis- 
tinct contract,with which the underwriter on hull 
has had nothing whatever to do. Moreover, the un- 
derwriters on hull acquiesce in this absurd construc- 
tion of the waivers in their policies. 

The Supreme Court of Errors of Connecticut, in 
the case of Schmaelzle vs. the London and Lanca- 
shire Fire Ins. Co., reported in 33 Ins. L. J. 632, 
has adopted a somewhat novel method of apportion- 
ing a loss between non-concurrent policies. It makes 
the blanket insurance contribute in its whole amount 
with the specific on the item upon which the p-^-eatest 
loss has been sustained, then the reduced amount of 
the blanket goes back and contributes with the spe- 
cific on the item upon which the next largest loss 
has been sustained, and so on, following the items 
in the order of the greatest loss down to the least. 
In the case before the court, there were compound 
policies covering all the items, and aggregating the 
amount of $55,000. There were also covering on the 
same property specific policies, covering on all the 
items, in proportionate amounts, aggregating $5,000. 
It was conceded on all sides that the assured was 
entitled to complete indemnity in any event. The 
companies that issued the compound policies con- 
tended that their policies should be made to contrib- 
ute either in the ratio of the losses or in the ratio 
of the values of the items affected by the less, there 
being one small item upon which no loss was sus- 
tained (preferably, I suppose, the method that would 
yield them the greater salvage). The court admitted 
that the preponderance of authority is in favor of 
making the blanket insurance float with the loss. 
It started out with the declaration that: "The policy 



144 THE APPORTIONMENT OP LOSS AND 

expressly states how its liability shall be deter- 
mined. The question becomes one of contract con- 
struction. It is not one of equitable determination 
in the absence of an agreement." And it quoted the 
contribution clause in support of this doctrine. 
Finally it wound up by saying: "In the present 
case it matters not to the assured, and little to the 
insurers, what order of adjustment is adopted. The 
order first indicated, to-wit. that of the greatest 
losses, is one which, as a general rule, has some con- 
siderations in its favor. In this case it works out 
substantial equity and justice to all concerned. We 
therefore select it for the purpose of this case, as,, 
on the whole, the best." This looks very much like 
treating it as a case of "equitable determination in 
the absence of an agreement." 

While blindfolded Justice was endeavoring to hold 
the scales evenly balanced, she was also blinded to 
the inconsistency between the two conflicting theo- 
ries upon which this decision was predicated. 

The result of the decision worked out as follows: 



CONTRIBUTION OF COMPOUND INSURANCE. 145 



CO M rj< 

la >, ^ 



5S5 



U3 >> iH 
tH CO CO 









o c^ 
C 00 



O 0)0 

•2 o^» 








laia 


•rt*iO 




oe<) 




'«l<r-l 


«*»• 


00 tH 




r-ir-i 




-* 


r-> 


€/> 



2 '«l^r-l la 



rHrH C<l 






OO 

OO 



If, however, the specific policies in this case had 
been reduced 20 per cent., and the general policies 
had been $40,000, then on the same basis the insur- 
ance on machinery would have made a salvage of 
$720.41, that on brewery a salvage of $518.48, while 
the Insurance on stock and the blanket insurance 



146 



THE APPORTIONMENT OP LOSS AND 



would have been exhausted, and the assured would 
have come short of indemnity $204.68, as follows: 



b^ 


«D 


^ aJ xii 


CO 


&Ph 


CO 


<D 




e ** 








^ 




U 








W 00 


iri 


c^f* 


«o 



M 0> 
^ 00 
TO f- 



"wo 

C CO 



PL, tH OS 



o 

•♦J 






eo 


NO 


CO 


COO 




OOO 




-*o 


«»■ 


t-o 




<MO 




•* 




«e- 



rH pL, 



oo 
oo 
oo 



S 



Working out the last example on the basis of the 
general insurance floating with the loss, we have: 



CONTRIBUTION OF COMPOUND INSURANCE. 147 



^. ^ 






^•> CO 





Oi 


OJ Cd 


oi 


f^ rH-^ 






CO 


<D 




at «=> 


CO 


00 


M . t^ 


LO 


"^ w o 


1^- 


C CO 


o 1 


M 






Tt*" 




iH 


«9- 




00 


<M 


00 


tH 


KJ "^^ 


C<J* 


^CO 


o 


^^l 


t- 


Ph -^ 


cT 


^ - 




o 




-M 




W o 


iH 


o 


Oi 


^ '-^ 


(M* 


2 «> 


(M 


5 "* 


CO 


M « 




tH 


o 




tH 


«(9- 




ot 


o 


ii o^ 


o 
o 


ftO rfH rto 




'St" 


1 



CO CI 

«ooo 
ooo 



i 

Ph 



oo 
oo 
oo 



B 

B 
m 



This gives the specific policies a salvage of 3.41 
per cent., and the blanket a salvage of 2.27 per cent, 
after having fully indemnified the assured. In strik- 
ing contrast with the same example worked out by 
the method adopted by the Supreme Court of Errors 
of Connecticut. 



148 



THE APPORTIONMENT OF LOSS AND 



Making the blanket insurance float with the loss 
does not invariably produce satisfactory results, 
however, as the following examples will demonstrate: 
Company A insures $40,000 on stock; Company B 
$20,000 on machinery; Company C $10,000 on stock 
and machinery. Loss on stock $1,000, and on ma- 
chinery $20,100. 



o 

^5 



CO 



OOlOCO 



o o 
H ooo 



0) 0) C 



6 6 6 

OOO 



CONTRIBUTION OF COMPOUND INSURANCE. 149 

Reduce the loss $1,000 in the proportions of $900 
on stock and $100 on machinery, and we have the 
anomaly of thereby increasing the loss of Company 
C about $150, as follows: 



r-i Oi 



o 


TJHIO 


o 


LO"^ 


o 


LC ''f 


o 


COCO 


(M 


of CO 


«9- 






«^ 


iA 




Ui 




<D 


O-f 


c 


0(M 


2 

§ 


do 


OlO 


O^C3i 


s 






«^ 




0> iH 




OS o 




00 tH 




OS 


d 




o 


ee- 






««• 








M 


o «o 


o 

o 


O OS 


d i>^ 


m 


o o 




O ""i^ 




d" 








«9- 




OSOOffO 




CS-XHU5 




00 US US 




OSlOrt< 




W€0 








co"?©" 


m 


«»■ 


d 




■*-> 




o 


ooo 


H 


ooo 




ooo 








ddo" 







a> <D irt 



150 THE APPORTIONMENT OF LOSS AND 



As Mr. Rice facetiously expresses it, **A really 
bright adjuster, perhaps, would find Company C's 
salvage by magnifying the loss" It is not, therefore, 
of such comprehensiveness and universal applicabil- 
ity as to render it infallible. 

The system advocated in such a masterly manner 
by the late Mr. E. P. Rice, before the Fire Under- 
writers' Association of the Northwest, does appear 
to me to be well worthy of study and analysis, and 
I commend it to the attention of all those who take 
an interest in this subject as being based upon sound 
principles and appearing to be of universal applica- 
bility. At least, I have applied it to a great number 
of cases, with uniformly satisfactory results, except 
in one, and in that instance Mr. W. O. Robb pointed 
out that I had misapplied Mr. Rice's method, it 
bein^ a case of double non-concurrency, and in which 
Mr. Rice intended to apply his rule in the first in- 
stance to the non-concurrent items and then go back 
with the unexhausted compound insurance to the 
item covered by all the other policies. I found that 
the fault had been in me and not in Mr. Rice's rule. 
This restored my confidence in its universal applica- 
tion, and I believe it affords a solution of this diffi- 
cult question on scientific principles. The principal 
objection that I have heard to its general adoption 
is that it is diflacult of application, but this is more 
fancied than real. A little practice will soon famil- 
iarize the student with its operation and render it 
easy of application. It is based upon the subdivision 
of the blanket insurance so as to make it cover upon 
the several items and contribute with the specific in 
the proportion of the over-insurance on each, distrib- 
uted according to the maximum over-insurance, 
which is ascertained by deducting the loss on each 
item from the sum of the blanket insurance and the 
specific insurance on that item. The last two of the 
foregoing examples worked out by Mr. Rice's rule 
will demonstrate that diminishing the loss in the 
ratios used in those examples will result in a corre- 
sponding reduction in the amounts assessed upon the 
several insurances — specific and compound — instead 
of the glaring inequalities produced in those 
examples : 



CONTRIBUTION OP COMPOUND INSURANCE. 151 



O 






6^35^ 



oo 
oo 
oo 



oo 
oo 
oo 



p 

w3 


II 

II 


o< 


pqo 


6 6 
OO 


6 d 
OO 



152 THE APPORTIONMENT OP LOSS AND 

The specific insurance on stock is $40,000, to which 
is added the compound insurance, $10,000, making 
$50,000, and deducting therefrom the loss on stock, 
$1,000, gives the maximum over insurance on stock 
$49,000. The specific insurance on machinery is 
$20,000, to which add the compound insurance, $10,- 
000, making $30,000, and deducting therefrom the 
loss on machinery, $20,100, gives the maximum over 
insurance on machinery $9,900. The entire insur- 
ance being $70,000 and the entire loss $21,100, the 
aggregate over insurance is $48,96o, which being 
divided in proportions of the maximum over insur- 
ance on each item, gives over insurance on stock 
$40,680.81 and on machinery $8,219.19. Add the loss 
on each item to each of these amounts, will give the 
insurance on stock $41,680.81 and on machinery $28,- 
319.19. The specific insurance on each item being 
given, the difference between it and the sum of the 
insurance gives the compound insurance applying to 
the item. 

Reducing the loss $1,000, viz.: $900 on stock and 
$100 on machinery: 



CONTRIBUTION OF COMPOUND INSURANCE. 153 



C^ y-i 


O 


^CD 


C^O 


o 


O?^ 


ai<z> 


o 


CiO 


U5 --ti 


o 


r^00 


W9- 




tHOO 




««- 


-^krt 







oco 




o 

CD 


od 
oco 
oco 


•-^ o ,h" 


^ 


o"oo 



o 



«3^ 



oo 
oo 
oo 



oo 
oo 

oo 



a a; 
<!0 



d c 



154 



THE APPORTIONMENT OF LOSS AND 



Resulting in a reduction of loss to Company A of 
$63.78, Company B $76.28, and Company C $64.05. 
Examples might be multiplied indefinitely, but I am 
conscious of having infringed upon your space al- 
ready, and I will trespass upon your indulgence no 
further than to give an example of the application of 
Mr. Rice's rule to Griswold's Statement No. 19, which 
appears to have given that indefatigable writer no 
little difficulty: 



ooo 
ooo 
ooo 



t-t O CO 



355 



II 

r-i CO 

S ^ 

U i^ i-, 

PP o 

S S !=! 

ooo 
ooo 

ooo 



M W W Oi 

<U <D <U O 
^ fn U f~> 

P P p :=i 
vi VI m VI 

B B B B 

6 6 6 6 
OOOO 



CONTRIBUTION OP COMPOUND INSURANCE. 155 

This being a case of double non-concurrency and 
Companies B, C and D covering on items not covered 
by Company A, the loss on flour and grain is first 
apportioned upon the three former companies and 
then they go back with their unexhausted amounts 
and contribute with Company A to make good the 
loss on pork. 





O"* 




ooo 


m 


c-q t- 


>i 


00 tH 


r>, 


CO 1-1 


^ 


(M 




€«• 



. coo 
in ooo 
C oo 



OC 1-1 



i-IO 



m 


«oas<?qo 


>. 


«>T-ia5C<i 


d 


iH LOCO to 


u 


■<*1 ■>* Tfl Tf 


€«- 


s 




s 




:3 


oooo 


rn 


oooo 


m 


oooo 


c 


lOlO LCU5 



o 



6 6 6 6 
OOOO 



3^ 



§c 



CO Hi ^ 

^30 



0^0 

10 LO 



o 00 

o 00 

o oo_^ 

o laia 



M CO 1-1 U5 
. >» coo CO C5 



i O CO tH CO 

> ^ OCO r-lU5 
' OT O C<i Cvl 10 
C ooc* t- 
H O COOOCQ 
LOC^fi-i M 



d 6 
00 



PO 



<JMOQ 



oooo 

oooo 



156 THE APPORTIONMENT OF LOSS AND 

Thus giving each an equitable share of the salvage 
and neither paying more than the proportion which 
the sum insured by it bears to the aggregate insur- 
ance. 

I trust that my mite may tend to shed a ray of 
light upon a question of interest to the fraternity. 

A. R. Manning. 

APPORTIONMENT OF LOSS BY RICE'S RULE. 
Reply by W. H. Daniels to A. R. Manning's Discus- 
sion of Apportionment of Loss by Rice's Rule. 
Editor "Rough Notes": September 7, 1905. 

The communication of A. R. Manning, of Cleveland, 
Ohio, which was published in the "Rough Notes" of 
July 6, 1905, in which he discusses and applies dif- 
ferent rules for the apportionment" of non-concur- 
rent insurance, has been very thoroughly considered 
by me, because I was at that time investigating 
and experimenting with the rule advocated by E. F. 
Rice, of Cincinnati, Ohio, in a paper read by him 
in 1880 before the members of the Fire Under- 
writers' Association of the Northwest. 

I contend now, as I have urged on several occasions 
in the past, that the apportionment of non-concurrent 
insurance is an important question, and the insur- 
ance companies for several good and practical 
reasons, should co-operate and adopt some rule for 
general use. 

I have read, with considerable interest, what Mr. 
Manning says in the first stanza of his communica- 
tion regarding the practice of some adjusters in 
selecting a rule and applying the same for the appor- 
tionment of non-concurrent insurance. He says, 
after referring to my communication of April 20th 
last, "I heartily concur in his hope that the discus- 
sion of this vexed question may lead to the adoption 
by most of the fire insurance companies doing 
business in the United States of a rule for the 
apportionment of losses under non-concurrent poli- 
cies, instead of leaving the question to be wrangled 
over by the adjusters, each contending for the 
method that will best subserve the interests of the 
company represented by him, for the occasion, and 
finally compromised or settled by a majority vote, 
contrary to the convictions of those who may have 
advocated a more logical rule to govern the case in 
question." I regret that my experience cornpels me 
to admit that what Mr. Manning says in his com- 
munication about the methods adopted by some ad- 



CONTRIBUTION OF COMPOUND INSURANCE. 157 

justers, in applying a rule for the apportionment of 
non-concurrent insurance, is true. An adjuster who 
is governed in selecting the rule to apply in these 
cases, by the way its application will effect the 
interest of the company or companies he represents, 
and applies th§ rule which is the most beneficial 
to his companies, because it reduces the amount of 
loss to be paid by them, is not honest. For this class 
of adjusters, what is needed is not so much the 
adoption of a rule for general use in the apportion- 
ment of non-concurrent insurance as actual practice 
in doing business honestly. They should learn to 
do business with due respect for and appreciation 
of, the rights of others — be governed by integrity 
and principle and not by greed for money, and be 
consistent. The adjuster who insists on applying 
in a particular case the rule which benefits most 
the company or companies he represents, and in some 
other case would apply another rule because it was 
to the advantage financially of his company or com- 
panies, is not properly qualified to act as an ad- 
juster, and his case is one which needs heroic 
treatment by his employer. 

In 1880 E. F. Rice, then an adjuster for the ^tna 
Insurance Company, and residing in Cincinnati, 
Ohio, read a paper at the meeting of the Fire Under- 
writers' Association of the Northwest, on the subject 
of apportionment of non-concurrent insurance. In 
his paper, after criticising several other rules, he 
advocated the use of a rule which has been named 
"Rice's Rule." He applies his rule to a complicated 
adjustment problem, and to understand the rule, it 
is necessary to thoroughly study the application of 
it as made by Mr. Rice. 

The explanation of the rule as made by Mr. Rice, 
with the statement of loss and insurance, and the 
application of the rule as shown in detail in the 
paper read by Mr. Rice, as stated herein, is as 
follows : 

"The loss, if any, for which the general policy 
alone is held, having been satisfied, the apportion- 
ment of the insurance remaining under that policy 
should be made to the several subjects insured in 
the proportion which the maximum over-insurance 
upon each item bears to the aggregate over-insurance 
on all collectively. Under such an apportionment 
an increase of loss, though disproportionately made, 
will increase the share of each company, and a de- 
crease of loss will decrease the share of each com- 



158 



THE APPORTIONMENT OF LOSS AND 



pany. The apportionment is made with reference 
to the existence of other insurance applicable to the 
payment of those losses. 

"To illustrate what seems to me the only correct, 
legal and equitable method of apportioning this 
class of cases, I borrow the following examples from 
the "Insurance Times," of September, 1879, pages 
595 and 605, only substituting letters for Roman 
numerals in indicating the subjects insured: 






c c c c 

oooo 






w o o 



o 



fl c c: 
o o o 
ooo 

USOO 



m m m 
o) (D a; 
^H t^ ^- 
3 ? P 
m tn m 
CSC 



-<PQOOO 
>%>>>,>>>» 

c c c c c 

cj d cC c^ (X 
A P< P< P< & 

aasss 

o o o o o 
UOOOO 



CONTRIBUTION OF COMPOUND INSURANCE. 159 

"It is evident that the aggregate loss is $175 less 
than the aggregate insurance, and that Co. A alone 
covers the loss on P, $125, which loss is satisfied 
by that company before proceeding to an apportion- 
ment of the other losses. If the policies of A and B, 
which are now concurrent, were added to the insur- 
ance under policy C (of $50) upon M, we should 
h^ve a maximum insurance of $900 to pay the M loss 
of $500, or an over-insurance of $400. If, however, 
these policies were applied with C's $200 to the pay- 
ment of the N loss of $375, the over-insurance would 
be $675; or, similarly applied with the $200 specifi- 
cation of C's policy to the payment of the O loss of 
$250, the over-insurance upon this item would be 
$800. But the actual aggregate over-insurance is only 
$175; therefore an apportionment of the over-insur- 
ance would give $37.33 to the M loss, $63 to the N 
loss, and $74.67 to the O loss, or the whole amount 
of insurance applicable to the payment of the sev- 
eral losses would be: 

$537.33 insurance to pay a loss of $500 

438.00 insurance to pay a loss of 375 

324.67 insurance to pay a loss of 250 



$1,300.00 . $1,125 

The apportionments of losses to insurance 
would be: 

Loss on M, $500 — 

Company A insures $358.33 and pays $333.43 

Company B insures. . . .' 129.00 and pays 120.04 

Company C insures 50.00 and pays 46.53 

$537.33 $500.00 

Loss on N, $375 — 

Company A insures $175.00 and pays $149.83 

Company B insures 63.00 and pays 53.94 

Company C insures 200.00 and pays 171.23 

$438.00 $375.00 

Loss on O, $250 — 

Company A- insures $91.67 and pays $70.59 

Company B insures 33.00 and pays 25.41 

Company C insures 200.00 and pays 154.00 

$324.67 $250.00 

Loss on P, $125 — 
Company A insures $125.00 and pays $125.00 

You will notice when you begin to study the solu- 
tion of this adjustment problem made by Mr. Rice, 
that he sets aside $125 of policy A, which is a com- 
pound policy covering on M, N, O and P, and the 
only one covering on P, to pay the loss of $125 on 
P. The rule he has applied is the "Cromie Rule." 



160 THE APPORTIONMENT OF LOSS AND 

This rule was made by Chief Justice Marshall of 
the Kentucky Supreme Court, in the case of Cromie 
vs. The Kentucky and Louisville Mutual Insurance 
Company, decided about fifty years ago. This decis- 
ion is in 15 B. Monroe (Ky.) 432. 

The Cromie Rule. 

"When the compound insurance covers property 
which is not covered by the specific insurance, a 
portion of the compound insurance equal to the 
amount of loss on this property must be set aside to 
pay this loss. The remainder of the compound 
insurance contributes with the specific to pay the 
loss on the property, covered by the specific insur- 
ance. If the loss on the property covered only by the 
compound insurance is equal to or greater than 
the compound insurance, this insurance will be ex- 
hausted and there will be nothing to contribute from 
to help out the specific insurance." 

Mr. Rice has explained fully how he obtains what 
he calls the maximum over-insurance, and it is on 
M, $400, on N, $675 and on O, $800, making a 
total maximum over-insurance on M, N and O of 
$1,875. The actual insurance in excess of the actual 
loss is $175, This actual over-insurance of $175 is 
apportioned to items M, N and O in the ratio that 
the maximum over-insurance on each of the three 
items bears to the total maximum over-insurance on 
all three items. This gives item M 400/1,875 of 
$175, which is $37.33 — this amount added to $500, 
the amount of loss on M, makes the total insurance 
covering on M $537.33. Item N would have 675/1,875 
of $175, which is $63.00 — add to this amount the 
loss on N of $375, makes the total insurance covering 
on N $438. Item O would be entitled to 800/1,875 
of $175, which is $74.67 — this amount plus the loss 
on O of $250, makes the total insurance covering 
on O $324.67. 

Policy A covers $750 on M, N, O and P. The loss 
on P is $125 and $125 of policy A has been set aside 
to pay the loss on P. This leaves $625 of policy A 
covering on M, N and O — policy B has $225 on M, 
N and O, which makes a total insurance of $850 on 
M, N and O. 

We have shown that the total insurance on M is 
$537.33. Policy C has $50 specific insurance on M, 
and this deducted from $537.33 leaves $487.33 insur- 
ance on M in policies A and B. Mr. Rice makes 
625/850 of $487.33 the insurance in policies A and 



CONTRIBUTION OF COMPOUND INSURANCE. 161 



B on M, or $358.33 as the insurance in policy A cov- 
ering on M. He also makes 225/850 of $487.33 the 
insurance in policies A and B on M, or $129 as the 
insurance on policy B covering on M. The insurance 
on M, on N and on O in companies A and B is made 
specific in the ratio that the insurance in each com- 
pany covering on M, N and O bears to the total in- 
surance in companies A and B covering on M, N and 
O. I ask you to carefully investigate the method 
adopted by Mr. Rice in apportioning the compound 
insurance between the companies on each item of 
property covered. I have explained it in detail. 
When I call your attention to the application of 
"Rice's Rule," to Mr. Griswold's statement No. 19 
as made by Mr. Manning in his communication, I 
will recall how the compound insurance was appor- 
tioned by Mr. Rice. 

It does not seem to me as if it were necessary for 
Mr. Rice to use the "Cromie Rule'* in the solution 
of this adjustment problem. I believe the principle 
of the rule he used is broad enough to take care of 
an item which is covered only by one of the com- 
pound policies. 

The maximum insurance in companies A, B and C, 
covering on M, is $1,025. The loss on M is $500, 
which deducted from $1,025, leaves a maximum over- 
insurance of $525. The maximum insurance in com- 
panies A, B and C, covering on N, is $1,175. Deduct 
from $1,175 the maximum insurance on N, $375 the 
loss on N, gives a maximum over-insurance on N of 
$800. The maximum insurance in companies A, B 
and C covering on O, is $1,175. The loss on O is 
$250, which deducted from $1,175, leaves a maximum 
over-insurance of $825. The maximum insurance on 
P is $750 and the loss is $125, leaving a maximum 
over-insurance of $625. The actual over-insurance is 
$175, which distributed to the four items of property 
in the ratio that the maximum over-insurance on 
each item bears to $2,775, the maximum over-insur- 
ance on all items, gives M $33.11, N $50.45, O $52.03 
and P $39.41. These several items, added to the 
loss on each item gives us a total insurance on each 
item as follows 

Insurance on item M, $533.11, to pay a loss of $500 

Insurance on item N, 425.45, to pay a loss of 375 

Insurance on item O, 302.03, to pay a loss of 250 

Insurance on item P, 164.41, to pay a loss of 125 

Total insuranace of $1,425.00, to pay a loss of. $1,250 

11 



162 THE APPORTIONMENT OF LOSS AND 

The insurance on P is shown to be $164.41, which 
deducted from $750, the amount of policy A, leaves 
$589.59 covering on M, N and O. Policy B covers 
^225 on M, N and O. It is necessary to deduct 
$164.41, the amount of insurance company A has on 
item P, from $750, the amount of the policy, before 
•apportioning the compound insurance on items M, 
K and O to the two companies, A and B. If we did 
not do it, the insurance apportioned to company A 
might be more than $585.59. Company A would carry 
58,559/81,059 of the compound insurance on each item 
and company B would carry 22,500/81,059 of the com- 
pound insurance on each item. 

The apportionment of the compound insurance to 
items and the apportionment of the loss on each 
item would be: 

Loss on M, $500 — 

Company A insures $349.01 and pays $327.33 

Company B insures 134.10 and pays 125.77 

Company C insures 50.00 and pays 46.90 

Total insuranace of $533.11 pays ~$500T00 

Loss on N, $375 — 

Company A insures $162.87 and pays $143.56 

Company B insures 62.58 and pays 55.16 

Company C insures 20 0.00 and pays 176.28 

Total insurance of $425745 pays $375.00 

Loss on O, $250 — 

Company A insures $73.71 and pays ' $61.01 

Company B insures 28.32 and pays 23.44 

Company C insures 200.0 and pays 165.55 

Total insurance of $302. OT pays "$250.00 

Loss on P, $125 — 

Company A insures $164.41 and pays $125.00 

Total insurance of "$164.41 pays $125.00 

Company A insures on M $349.01 and pays $327.33 

Company A insures on N 162.87 and pays 143.56 

Company A insures on 73.71 and pays 61.01 

Company A insures on P 164.41 and pays 125 .00 

Total insurance of $750.00 pays $656.90 

^Company B insures on M $134.10 and pays $125.77 

^Company B insures on N 62.58 and pays 55.16 

♦Company B insures on 28.32 and pays 23.4 4 

Total insurance of $2^25.00 pays $204.37 

Company C insures on M $50.00 and pays $46.90 

Company C insures on N 200.00 and pays 176.28 

Company C insures on 200.00 and pays 165.55 

Total insurance of $450.00 pays $388.73 

Company A insures $750.00 and pays $656.90 

Company B insures 225.00 and pays 204.37 

Company C insures 450.00 and pays 388.73 

Total insurance of $1,425.00 pays $1,250.00 



CONTRIBUTION OF COMPOUND INSURANCE. 163 

I think it advisable to treat this adjustment prob- 
lem as I have, and distribute the actual over-insur- 
ance to all items covered by the insurance. In other 
words, it appears to me to be entirely unnecessary 
to use the "Cromie Rule" in this case, as Mr. Rice 
has done, for his rule, as I have shown, takes care 
of every item. The application of "Rice's Rule" to 
this problem would indicate that it is a good rule. 

Mr. Rice did not give in the paper he read before 
the members of the Fire Underwriters' Association 
of the Northwest, his rule for apportionment of non- 
concurrent insurance. We are therefore compelled 
to develop his rule from the application of it, made 
by him to an adjustment problem, and this I have 
attempted to do. 

Mr. Manning, in his communication, gives, as he 
says, "an example of the application of Mr. Rice's 
rule to Griswold's statement No. 19, which appears 
to have given that indefatigable writer no little diffi- 
culty. 



164 



THE APPORTIONMENT OF LOSS AND 



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"This being a case of double non-concurrency and 
companies B, C and D covering on items not covered 
by company A, the loss on flour and grain is first 
apportioned upon the three former companies and 



CONTRIBUTION OF COMPOUND INSURANCE. 165 



then they go back with their unexhausted amounts 
and contribute with company A to make good the loss 
on pork. 



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and neither paying more than the proportion which 



166 



THE APPORTIONMENT OP LOSS AND 



the sum insured by it bears to the aggregate insur- 
ance." 

If you will carefully examine the application of 
"Rice's Rule," as made by Mr. Manning to Griswold's 
statement No. 19, you will see that before he takes 
up the apportionment of the loss on pork, he suc- 
ceeds in applying the rule correctly to a proposition 
like this: 

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If Mr. Griswold's statement No. 19, so far as insur- 
ance and loss are concerned, had involved only flour 
and grain, then the way Mr. Manning has handled 
it, as to loss on flour and grain, would be correct. 



CONTRIBUTION OF COMPOUND INSURANCE. 167 

Company A covered only on pork, consequently it 
did not contribute from more than its face — that it, 
$5,000. Company B is made to contribute from $5,000 
on flour and from $2,882.36 on pork, or from 
$7,882.36, when its policy was issued for $5,000. 
Company C issued a policy for $5,000, but it is made 
to contribute from $6,842.11. Company D, with a 
$5,000 policy, is made to contribute from $2,083.33 
on flour, $2,916.67 on grain and $2,275.53 on pork, 
making a total of $7,275.53. In making each of these 
three $5,000 policies contribute from considerably 
more than their face, Mr. Manning has applied the 
principle advocated by the Supreme Court of Errors 
of Connecticut, in the case of Schmaelzle v. London 
and Lancashire Fire Ins. Co., where $55,000 insur- 
ance was made to contribute from $117,880.55. Mr. 
Manning refers in his communication to this case 
and does not speak as if he approved of the rule 
applied by the court. , In fact, Mr. Manning criticises 
the decision made by the Connecticut court. If Mr. 
Manning has applied "Rice's Rule" to Mr. Griswold's 
statement No. 19, he has, in my opinion, demon- 
strated that it is not a good rule. 

There are in this problem three items covered by 
the insurance — pork, flour and grain. The maximum 
insurance on pork is $20,000, because four $5,000 
policies cover on pork. Deduct from this $20,000 
the maximum insurance on pork, the loss on pork 
of $10,000 gives a maximum over-insurance of 
$10,000. The maximum insurance on flour is $10,000 
in companies B and D — each covers for $5,000 on 
flour and other items. Take $3,000, the loss on flour 
from $10,000, the maximum insurance on flour, leaves 
$8,000 as the maximum over-insurance on flour. The 
maximum insurance on grain is $10,000, being a 
$5,000 policy in each company, C and D. This $10,000^ 
the maximum insurance on grain, reduced $5,000, the 
loss on grain, leaves $5,000 as the maximum over- 
insurance on grain. 

The maximum insurance on any item, it seems to 
me is the full amount that could be made to contrib- 
ute to pay a loss on the item. In this case if the 
loss was all on pork and was $20,000 or more, the 
four companies would pay a total loss. In other 
words, there is $20,000 of insurance that could be 
called on to pay a loss on pork. There is $10,000 of 
Insurance that could be made to pay a loss on flour 



168 



THE APPORTIONMENT OP LOSS AND 



and also $10,000 that could be made to pay a loss on 
grain. If I am correct as to what maximum insur- 
ance means, we would get the following results: 






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The total maximum over-insurance is shown to 
be $22,000. In making the distribution of the actual 



CONTRIBUTION OP COMPOUND INSURANCE. 169 

over-insurance, we get 10,000/22,000 of $2,000 or 
$909.09 as covering on pork. Add to $909.09, the loss 
on pork of $10,000, gives us a total insurance on 
pork of $10,909.09. We have 7,000/22,000 of $2,000, 
the actual over-insurance, or $636.36 covering on 
flour. Add $3,000, the loss on flour, to $636.36, gives 
$3,636.36 as the total insurance on flour. The loss 
on grain is $5,000, which added to 5,000/22,000 of 
$2,000, the actual over-insurance, or $454.55, gives 
us $5,454.55 as the total insurance on grain. 

We now have the total insurance covering on each 
of the three items of property described in the poli- 
cies. Mr. Rice made the compound insurance specific 
in the ratio that the amount of each compound 
policy bore to the amount of all the compound insur- 
ance covering the property. The distribution can 
not be made on this basis if there is any specific 
insurance. For instance, there are four $5,000 poli- 
cies covering pork. One-fourth of $10,909.09, the 
insurance on pork, is $2,727.27. As company A has 
$5,000 specific insurance on pork, we must get the 
amounts companies B, C and D cover on pork in some 
other way. There are two $5,000 compound policies 
covering on flour. There is $3,636.36 insurance on 
flour, which divided on the basis, the amount of 
each of the two policies bears to the amount of the 
two policies, gives $1,818.18 as the amount each com- 
pany — B and D — insure on flour. Company B covers 
$5,000 only on pork and flour, consequently that part 
of it which does not cover on flour must cover on 
pork. By deducting $1,818.18, the insurance on flour, 
from $5,000, the amount of the policy issued by 
company B, leaves $3,181.82 as the amount this 
company covers on pork. We have two $5,000 com- 
pound policies covering on grain. The total insur- 
ance on grain is $5,454.55, which, divided on the 
basis, the amount of each policy bears to the amount 
of both policies, gives $2,727.28 of one policy and 
$2,727.27 of the other, covering on grain. Company 
C covers $5,000 only on pork and grain, consequently 
that part of it not covering on grain must cover on 
pork. If we deduct $2,727.28, the amount of policy 
issued by company C covering on grain, we get 
$2,272.72 as the amount company C covers on pork. 
Company D covers on pork, flour and grain. We have 
ascertained that this company covers $1,818.18 on 
flour and $2,727.27 on grain, consequently the differ- 
ence between $4,545.45, the amount this company 
covers on flour and grain and $5,000, the amount of 



170 



THE APPORTIONMENT OP LOSS AND 



the policy, which is $454.55, is the insurance company 
D covers on pork. 

The schedule of insurance and apportionment of 
claim is as follows: 







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CONTRIBUTOIN OP COMPOUND INSURANCE. 171 

An examination of the results obtained by my ap- 
plication of "Rice's Rule" shows that the percentage 
of loss paid by each company is as follows: 

Company A 90926 per cent. 

Company B 88333 per cent. 

Company C 90926 per cent. 

Company D 88333 per cent. 

The greatest difference between the percentages 
paid is .02593 per cent. 

It must not be assumed that "Rice's Rule" always 
produces such results, that each policy pays about 
the same percentage of the loss. 

In a communication published in "Rough Notes" 
of April 20, 1905, wherein I discussed a rule for the 
apportionment of compound insurance, used by Wil- 
lis O. Robb, of New York, I said: 

After this examination of the two rules, the ques- 
tion very naturally arises: How generally can they 
be used? In my attempt to determine the matter, T 
applied them to an assumed case, and I found that 
both rules were failures when applied to the follow- 
ing assumed adjustment problem. I give herein the 
assumed case and explain the results as obtained by 
me when applying the two rules as I understand 
them: 

Statement. 

Sound Specific 

Value. Loss. Insurance 

Stock $59,000 $1,000 $40,000 

Machinery 21,000 20,000 20,000 

Totals $80,000 $21,000 $60,000 

Compound insurance on stock and machinery $10,000 



Total insurance $70,000 

If we apply Mr. Robb's rule for the apportionment 
on the basis of the losses, we would divide $70,000, 
the total insurance, by $21,000, the total loss, which 
would give us a percentage of insurance to loss of 
3.333333 plus, which, multiplied by the loss on stock 
of $1,000, gives $3,333.33 as the total specific and 
compound insurance on stock. This rule applied to 
machinery gives us $66,666.67 as the total specific 
and compound insurance on machinery. The specific 
insurance on stock being $40,000, the application of 
this rule would transfer $36,666.67 of this specific 
insurance from stock to machinery. It would be 



172 THE APPORTIONMENT OP LOSS AND 



impossible to change the insurance after the fire 
and make any part of the $40,000 specific insurance 
on stock cover on machinery. 

If we make the apportionment, according to Mr. 
Robb's rule, on the basis of the sound values, we 
would divide the total insurance of $70,000 by the 
total sound value of $80,000, and it gives us a per- 
centage of insurance to sound value .875, which, mul- 
tiplied by $21,000, the sound value of machinery, 
gives, as the total specific and compound insurance 
on machinery, $18,275. This rule applied to stock 
gives $51,625 as the total specific and compound 
insurance on stock. The specific insurance on ma- 
chinery being $20,000, the effect of applying this 
rule would be to transfer $1,725 of the specific insur- 
ance from machinery to stock. It would be impos^ 
sible to do this after the fire. 

Mr. Robb says, when speaking of the application 
of the rules: "* * * So that, whenever possible, 
and as nearly as possible, the ratio of insurance to 
loss (or value) shall be the same on all items." 

The rules used by Mr. Robb were intended to make 
each policy pay the same or about the same per- 
centa.sje of the loss. I applied his rules to this as- 
sumed case to show their defects. If we apply 
"Rice's Rule" to this adjustment problem, we will 
get a total of $41,694.91 insurance, covering on stock, 
to pay a $1,000 loss. The percentage of loss paid on 
stock would be .023983 plus. This rule gives us $28,- 
305.09 as the total insurance on machinery to pay a 
loss of $20,000. The percentage of loss paid on ma- 
chinery is .706586 plus. 

The percentage of loss paid by each company is 
as follows: • 

Specific insurance on stock 023983 per cent. 

Specific insurance on machinery.... .706586 per cent. 
Compound insurance on stock and 

machinery 590892 per cent. 

In this case the greatest difference between the 
percentages of loss paid is .682603 per cent. 

I have applied "Rice's Rule" to several adjust- 
ment problems for the purpose of testing it, and so 
far it has proved much more satisfactory than I an- 
ticipated. If I understand the rule and apply it cor- 
rectly, then so far as my experience goes, the rule 
produces satisfactory results. W. H. Daniels. 



CONTRIBUTION OP COMPOUND INSURANCE. 173 

"Rice-Daniels' Rule." 

I have taken Rice's Rule and made changes in it 
which in my judgment greatly improves it. I have 
applied this new version of Rice's Rule to several 
adjustment problems to illustrate its work and ex- 
plain its application. 

A. R, Manning, adjuster of Cleveland, Ohio, gave 
the above name to this rule, and, speaking of the 
rule, he says: 

"Mr. Daniels, however, has elaborated a most in- 
genious method of apportioning the liability upon the 
several policies, in cases of non-concurrent blankets, 
after the insurance applicable to the payment of the 
losses upon the several items of the policies shall 
have been determined by 'Rice's Rule,* and it ap- 
pears to clothe 'Rice's Rule' with universal and un- 
varying application to a problem which has taxed 
the best faculties of the votaries of fire insurance to 
their utmost in the attempt to formulate a satisfac- 
tory solution of an important question. It is at 
least deserving of study on the part of the fire insur- 
ance adjusters, and the earnest consideration of the 
managers of the fire insurance companies. I trust 
that it will receive the attention it merits, and that 
it will result in the adoption of a rule that will in 
future avoid the inconsistencies to which we have 
been subjected." 

The above statement having been made by a man 
of unquestionable ability and who has had many 
years' experience in adjusting fire losses, leads me 
to think that in the changes which I have made 
in "Rice's Rule," in my application of the same, I 
may have "Builded better than I thought." 

In this rule I use a part of a letter published in 
"Rough Notes" on September 7, 1905, for the reason 
that the letter shows the difference between the 
working of "Rice's Rule" and the one I give here. 

In 1880, E. F. Rice, then an adjuster for the Aetna 
Insurance Company, and residing in Cincinnati, Ohio, 
read a paper at the meeting of the Fire Underwriters^ 
Association of the Northwest, on the subject of appor- 
tionment of non-concurrent insurance. In his paper, 
after criticising several other rules, he advocated the 
use of a rule which has been named "Rice's Rule.'* 
He applies his rule to a complicated adjustment prob- 
lem, and to understand the rule, it is necessary to 
thoroughly study the application of it as made by 
Mr. Rice. 



174 THE APPORTIONMENT OF LOSS AND 



The explanation of the rule as made by Mr. Rice, 
with the statement of loss and insurance, and the 
application of the rule as shown in detail in the 
paper read by Mr. Rice, is as follows: 

"The loss, if any, for which the general policy 
alone is held, having been satisfied, the apportionment 
of the insurance remaining under that policy should 
be made to the several subjects insured in the pro- 
portion which the maximum over-insurance upon 
each item bears to the aggregate over-insurance upon 
all collectively. Under such an apportionment an 
increase of loss, though disproportionately made, will 
increase the share of each company, and a decrease 
of loss will decrease the share of each company. The 
apportionment is made with reference to the existence 
of other insurance applicable to the payment of those 
losses. 

Problem No. 1. 

"To illustrate what seems to me the only correct, 
legal and equitable method of apportioning this class 
of cases, I borrow the following examples from the 
"Insurance Times," of September, 1879, pages 595 
and 605, only .substituting letters for Roman numer- 
als in indicating the subjects insured: 

The Insurances are : 
Company A insures $750 on M, N, O and P. 
Company B insures 225onM, NandO. 
Company C insures 50 on M. 
Company C insures 200 on N. 
Company C insures 200 on O. 



The Losses are: 

OnM $500 

OnN 375 

OnO 250 

OnP.... 125 


Losses . 


.$1,250 



$1,425 Insurance to pay. 

"It is evident that the aggregate loss is $175 less 
than the aggregate insurance, and that Company A 
alone covers the loss on P, $125, which loss is satis- 
fied by that company before proceeding to an appor- 
tionment of the other losses. If the policies of A 
and B, which are now concurrent, were added to the 
insurance under policy C (of $50) upon M, we 
should have a maximum insurance of $900 to pay 
the M loss of $500, or an over-insurance of $400. If, 
however, these policies were applied with C's $200 
to the payment of the N loss of $375, the over-insur- 
ance would be $675; or, similarly applied with the 
$200 specification of C's policy to the payment of the 
O loss of $250, the over-insurance upon this item 
would be $800. But the actual aggregate over-insur- 
ance is only $175; therefore an apportionment of the 
over-insurance would give $37.33 to the M loss, $63 



CONTRIBUTION OF COMPOUND INSURANCE 175 

to the N loss, and $74.67 to the O loss, or the whole 
amount of insurance applicable to the payment of 
the several losses would be: 



.33 insurance to pay a loss of $500 

438.00 insurance to pay a loss of 375 

324.67 insurance to pay a loss of 250 

$1,300.00 $1,125 

The apportionments of losses to insurance would be: 

Loss on M^ $500 — 

Company A insures $358.33 and pays $333.43 

Company B insures 129.00 and pays 120.04 

Company C insures 50.00 and pays 46.53 

$537.33 $500.00 

Loss on N, $375 — 

Company A insures $175.00 and pays $149.83 

Company B insures 63.00 and pays 53.94 

Company C insures 200.00 and pays 171.23 

$438.00 $375.00 

Loss on O, $250 — 

Company A insures $ 91.67 and pays $ 70.59 

Company B insures 33.00 and pays 2 5.41 

Company C insures 200.00 and pays 154.00 

$324.67 $250.00 

Loss on P, $125 — 
Company A insures $125.00 and pays $125.00 

You will notice when you begin to study the solu- 
tion of this adjustment problem made by Mr.- Rice, 
that he sets aside $125 of policy A, which is a com- 
pound policy covering on M, N, O and P, and the 
only one covering on P, to pay the loss of $125 on P. 
The rule he has applied is the "Cromie Rule." This 
rule was made by Chief Justice Marshall of the Ken- 
tucky Supreme Court, in the case of Cromie vs. The 
Kentucky and Louisville Mutual Insurance Company, 
decided about fifty years ago. This decision is in 15 
B. Monroe (Ky.) 432. 

The Cromie Rule. 

"When the compound insurance covers property 
which is not covered by the specific insurance, a por- 
tion of the compound insurance equal to the amount 
of loss on this property must be set aside to pay this 
loss. The remainder of the compound insurance con- 
tributes with the specific to pay the loss on the prop- 
erty covered by the specific insurance. If the loss on 
the property covered only by the compound insurance 
is equal to or greater than the compound insurance, 
this insurance will be exhausted and there will be 
nothing to contribute from to help out the specific 
insurance." 



176 THE APPORTIONMENT OP LOSS AND 

Mr. Rice has explained fully how he obtains what 
he calls the maximum over-insurance, and it is on M, 
$400, on N, $675, and on O, $800, making a total 
maximum over-insurance on M, N and O of $1,875. 
The actual insurance in excess of the actual loss is 
$175. This actual over-insurance of $175 is appor- 
tioned to items M, N and O in the ratio that the 
maximum over-insurance on each of the three items 
bears to the total maximum over-insurance on all of 
the three items. This ' gives item M 400/1,875 of 
$175, which is $37.33; this amount added to $500, the 
amount of loss on M, makes the total insurance cov- 
ering on M $537.33. Item N would have 675/1,875 
of $175, which is $63; add to this amount the loss on 
N of $375, makes the total insurance covering on N 
$438. Item O would be entitled to 800/1,875 of $175, 
which is $74.67; this amount plus the loss on O of 
$250, makes the total insurance covering on O $324.- 
67. 

Policy A covers $750 on M, N, O and P. The loss 
on P is $125, and $125 of policy A has been set aside 
to pay the loss on P. This leaves $625 of policy A 
covering on M, N and O. Policy B has $225 on M, 
N and O, which makes a total insurance of $850 on 
M, N and 0. 

We. have shown that the total insurance on M is 
$537.33. Policy C has $50 specific insurance on M, 
and this deducted from $537.33 leaves $487.33 insur- 
ance on M in policies A and B. Mr. Rice makes 
625/850 of $487.33 the insurance in policies A and B 
on M, or $358.33 as the insurance in policy 'A cover- 
ing on M. He also makes 225/850 of $487.33 the in- 
surance in policies A and B on M, or $129 as the 
insurance in policy B covering on M. The insurance 
on M, on N and on O in companies A and B is made 
specific in the ratio that the insurance in ea<jh com- 
pany covering on M, N and O bears to the total in- 
surance in companies A and B covering on M, N and 
O. I ask you to carefully investigate the method 
adopted by Mr. Rice in apportioning the compound 
insurance between the companies on each item of 
property covered. I have explained it in detail. 



CONTRIBUTION OF COMPOUND INSURANCE. 177 

Problem No. 2. 

Mr. Manning, in his communication, gives an ex- 
ample of the application of Mr. Rice's rule to Gris- 
wold's statement No. 19, which is as follows: 



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178 . THE APPORTIONMENT OF LOSS AND 

Mr. Manning says: "This being a case of double 
non-concurrency and companies B, C and D covering 
on items not covered by company A, the loss on flour 
and grain is first apportioned upon the three former 
companies and then they go back with their unex- 
hausted amounts and contribute with company A to 
make good the loss on pork." 



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CONTRIBUTION OF COMPOUND INSURANCE. 179 

Company covered only on pork, consequently it 
did not contribute from more than its face — that is, 
$5,000. Company B is made to contribute from $5,- 
000 on flour and from $2,882.36 on pork, or from 
$7,882.36, when its policy was issued for $5,000. Com- 
pany C issued a policy for $5,000, but it is made to 
contribute from $6,842.11. Company D, with a $5,- 
000 policy, is made to contribute from $2,083.33 on 
flour, $2,916.67 on grain, and $2,275.53 on pork, mak- 
ing a total of $7,275.53. In making each of these three 
$5,000 policies contribute from considerably more 
than their face, Mr. Manning has applied the princi- 
ple advocated by the Supreme Court of Errors of 
Connecticut, in the case of Schmaelzle vs. London 
and Lancashire Fire Ins. Co. 

In the case of Schmaelzle vs. London & Lancashire 
Fire Ins. Co., decided January 7, 1903, by the Su- 
preme Court of Errors of Connecticut, 53 Atlantic 
Reporter, 841, the court made $55,000 compound in- 
surance contribute from $117,880.55. It is assumed 
by the court in this case that a policy can legally be 
made to contribute for loss or damage caused at one 
time for an amount largely in excess of the insur- 
ance named in the policy. The principle which is the 
foundation of this decision is that the limitation of 
the amount a company may be compelled to contrib- 
ute from in the payment of a loss is not the insur- 
ance named in the policy and for which the consid- 
eration only was given. 

In this case the compound insurance was made to 
contribute with the specific from its full amount on 
the item which had the largest loss. The amount of 
the compound insurance remaining, after paying the 
loss on this item, contributes with the specific on the 
item of the policy which has the second largest loss. 
This plan of contribution is continued until the losses 
are paid or the compound insurance is exhausted. 
The principle which the decision in this case is based 
on, is not changed because of not using the English 
or Albany rules, which make the compound insur- 
ance contribute with the specific in its full amount 
on each item, or because of not making the compound 
insurance contribute first with the specific, to pay 
the loss on the item of the policy which is the least 
damaged, or because the compound insurance is not 
made to contribute with the specific and pay the loss 
on the items as they are set forth in the policy form. 
"Rice's Rule," as applied to Griswold's statement No. 
19 by Mr. Manning, makes $15,000 compound insur- 



180 THE APPORTIONMENT OF LOSS AND 

, ki: . 

ance contribute from $22,000, and for this reason I 
do not consider the rule a good one. 

Rule. 

First — Separate the damaged or destroyed property 
covered by all policies into as many items or divi- 
sions as is necessary, because of the non-concurrent 
insurance. Each item or division of property cov- 
ered by specific and compound insurance and that is 
not covered by all the compound insurance, must be 
handled separately. 

Second — Ascertain the maximum insurance on each 
item or division of property. Maximum insurance 
on any item or division of property, means the total 
insurance which could be made to contribute to pay 
a loss thereon. 

Third — When the property is separated into items 
or divisions, ascertain the loss or damage on each. 

Fourth — If the loss or damage is on only one of the 
items or divisions of property, all of the insurance — 
maximum insurance — covering it must contribute to 
pay the claim. 

Fifth — Deduct the loss on each item or division of 
property from the maximum insurance thereon, and 
the remainder will be the maximum over-insurance. 

Sixth — Deduct the total loss or damage on all items 
or divisions of property from the total insurance 
thereon, and the remainder will be the actual over- 
Insurance. Apportion the actual over-insurance to 
each item or division of property on the following 
basis — that is, as the maximum over-insurance on 
each item or division of property bears to the maxi- 
mum over-insurance on all of them. 

Seventh — Add the loss or damage on each item, or 
division of property, to the actual over-insurance ap- 
portioned to each, and the amount obtained will be 
the total insurance — compound and specific-^covering 
thereon which must contribute to pay the different 
claims. 

Eighth — The specific insurance on any item, or 
division of property, must be deducted from the total 
insurance thereon to ascertain the amount of the 
compound insurance which must be apportioned to 
the companies. 

Ninth — If two or more companies cover an item or 
division of property — one or more specific, and the 
other one compound — the remainder, after deducting 



CONTRIBUTION OP COMPOUND INURANCE. 181 

the specific from the total insurance thereon, would 
be the amount the compound policy covered on the 
item or division. 

Tenth — Apportion the compound insurance in each 
company to the different items or divisions of prop- 
erty in the ratio that the compound insurance on 
each item or division bears to the total compound 
Insurance on all items or divisions of property cov- 
ered by the policy. If under the first apportionment 
of the compound insurance to companies the total 
insurance on some item or division is too large, it 
will be too small on some other item or division. 
The excess insurance may be on one item or division 
and the shortage on two or more of them; the con- 
ditions may be the reverse of this, and the excess 
and shortage of insurance may both be on more than 
one item or division of property. 

Eleventh — If there is an excess and a shortage of 
insurance on different items or divisions of property 
after the first apportionment of the compound insur- 
ance to companies, a re-apportionment of the com- 
pound insurance on items or divisions where there 
is an over-insurance must be made. The over-insur- 
ance in companies carrying the compound insurance 
is apportioned from the items or divisions of prop- 
erty on which they cover where there is an excess 
of insurance, to the items or divisions on which they 
cover, where there is a shortage in the ratio that the 
insurance in each company, on each item or division, 
under the first apportionment of insurance to com- 
panies, bears to the total of said compound insurance 
thereon. 

Twelfth — Apportion the loss and damage on each 
item and division of property to each company cover- 
ing thereon in the ratio that the amount of insurance 
In each company on the item or division bears to the 
total insurance thereon. 

Problem No. 3. 

Company A covers on M, N. O and P $ 750 

Company B covers on M, N and 225 

Company C covers on M 50 

Company C covers on N 200 

Company C covers on 200 

Total Insurance $1,425 

Loss on M $ 500 

Loss on N 375 

Loss on 250 

Loss on P 125 

Total loss $1,250 



182 THE APPORTIONMENT OF LOSS AND 

This Is my solution of Problem No. 1, by omitting 
the use of the "Cromie Rule," which was used by 
Mr. Rice. It is not necessary to use the "Cromie 
Rule" in the solution of the adjustment problem 
which I have called "Problem No. 1." 

The maximum insurance in companies A, B and 
C, covering on M, is $1,025. The loss on M is $500, 
which, deducted from $1,025, leaves a maximum over- 
insurance of $525. The maximum insurance in com- 
panies A, B and C, covering on N, is $1,175. Deduct 
from $1,175, the maximum insurance on N, $375, the 
loss on N, gives a maximum over-insurance on N of 
$800. The maximum insurance in companies A, B 
and C, covering on O, is $1,175. The loss on O is 
$250, which, deducted from $175, leaves a maximum 
over-insurance of $825. The maximum insurance on 
P is $750 and the loss is $125, leaving a maximum 
over-insurance of $625. The actual over-insurance is 
$175, which distributed to the four items of property 
in the ratio that the maximum over-insurance on 
each item bears to $2,775, the maximum over-insur- 
ance on all items, gives M $33.11, N $50.45, O $52.03, 
and P $39.41. These several items, added to the loss 
on each item, gives us a total insurance on each item 
as follows: 

Insurance on item M, $533.11, to pay a loss of $ 500 

Insurance on item N, $425.45, to pay a loss of. .... . 375 

Insurance on Xtem O, $302.03, to pay a loss of 250 

Insurance on item P, $164.41, to pay a loss of 125 

Total insurance of $1,425, to pay a loss of $1,250 

The insurance on P is shown to be $164.41, which 
deduqted from $750, the amount of policy A, leaves 
$589.59 covering on M, N and O. Policy B covers 
$225 on M, N and O. It is necessary to deduct $164,- 
41, the amount of insurance company A has on item 
P, from $750, the amount of the policy, before appor- 
tioning the compound insurance on items M, N and 
O to the two companies, A and B. If we did not do 
it, the insurance apportioned to company A might 
be more than $585.59. Company A would carry 58,- 
559/81,059 of the compound insurance on each item, 
and company B would carry 22,500/81,059 of the com- 
pound insurance on each item. 

The apportionment of the insurance to items and 
the apportionment of the loss on each item would be: 



CONTRIBUTION OF COMPOUND INSURANCE. 183 



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184 THE APPORTIONMENT OF LOSS AND 

Company A insures on M....$ 348.41 and pays $ 327.48 

Company A insures on N.... 161.71 and pays 143.12 

Company A insures on O. . . . 76.84 and pays 62.72 

Company A insures on P.... 163.04 and pays 125.00 



Total insurance of $ 750.00 pays $ 658.32 

Company B insures on M....$ 133.55 and pays $ 125.53 
Company B insures on N. . . . 61.99 and pays 54.87 

Company B insures on O.... 29.46 and pays 24.04 

Total insurance of $ 225.00 pays $ 204.44 

Company C insures on M $ 50.00 and pays $ 46.99 

Company C insures on N. . . . 200.00 and pays 177.01 
Company C insures on O.... 200.00 and pays 163.24 

Total insurance of $ 450.00 pays $ 387.24 

Company A Insures $ 750.00 and pays $ 658.32 

Company B insures 225.00 and pays 204.44 

Company C insures. 450.00 and pays 387.24 

Total insurance of $1,425.00 pays $1,250.00 

I think it advisable to treat this adjustment prob- 
lem as I have, and distribute the actual over-insur- 
ance to all items covered by the insurance. In other 
words, it appears to me to be entirely unnecessary 
to use the "Cromie Rule" in this case. 

Mr. Rice did not give, in the paper he read before 
the members of the Fire Underwriters' Association 
of the Northwest, his rule for appportionment of non- 
concurrent insurance. We are therefore compelled 
to develop his rule from the application of it made 
by himself and others to adjustment problems, and 
this I have attempted to do. 

Problem No. 4. 

I will now apply the rule which I am using to 
tJriswold's Statement No. 20: 

•Company A covers flour and lard $ 5,000 

•Company B covers flour and grrain 5,000 

♦Company C covers pork and grain 5,000 

Total insurance $15,000 

Loss on flour $ 3,500 

Loss on pork 2,000 

Loss on grain 5,000 

Loss on lard 3,000 

Total loss $13,500 



CONTRIBUTION OF COMPOUND INSURANCE. 185 



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186 THE APPORTIONMENT OF LOSS AND 

Company A insures on lard $3,181.82 pays $3,000.00 

Company A insures on flour 1,818.18 pays 1,555.55 

Totals ...$5,000.00 $4,555.55 

Company B insures on flour $2,272.73 pays $1,944.45 

Company B insures on grain 2,727.27 pays 2,500.00 

Totals $5,000.00 $4,444,45 

Company C insures on pork $2,272.73 pays 2,000.00 

Company C insures on grain.... 2,727.27 pays 2,500.00 

Totals $5,000.00 $4,500.00 

Company A covers $5,000 on flour and lard. I apply 
the rule for the apportionment of the compound in- 
surance used in problems No. 1 and No. 3, and make 
it cover $3,181.82 on lard, consequently the remain- 
der, or $1,818.18, covers on flour. A and B are made 
to cover $4,090.91 on flour, and as A covers $1,818.18 
on flour, B must cover $2,272.73 to make $4,090.91, the 
full amount of insurance on flour. Company C cov- 
ers $5,000 on pork and grain. It is made to cover 
$2,272.73 on por^; the remainder, or $2,727.27, must 
be what C covers on grain. B and C cover on grain 
for $5,454.54, and if C covers $2,727.27, B must cover 
$2,727.27 to make $5,454.54, the total insurance on 
grain. This as you will see is not a complicated ad- 
justment problem, because the insurance carried by 
each company on each item of property is known 
when the total insurance on each item of property is 
ascertained. 

Problem No. 5. 

Company A covers on wheat $ 2,500 

Company A covers on corn 3,000 

Company A covers on oats 2,000 

Company B covers on grain 5,000 

Company C covers on grain 6,000 

Total insurance $18,500 

Loss on wheat $ 3,000 

Loss on corn 4,000 

Loss on oats 8,000 

Total loss $15,000 



CONTRIBUTION OF COMPOUND INSURANCE. 187 



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188 THE APPORTIONMENT OF LOSS AND 

Company A insures on wheat $2,500.00 pays $1,688.74 

Company A insures on corn 3,000.00 pays 2,233.58 

Company A insures on oats 2,000.00 pays 1,841.99 

Totals $7,500.00 $5,764.31 

Company B insures on wheat $ 882.35 pays $ 596.02 

Company B insures on corn 1,078.43 pays 802.92 

Company B insures on oats 3,039.22 pays 2,799.09 

Totals $5,000.00 $4,198.03 

Company C insures on wheat $1,058.83 pays $ 715,24 

Company C insures on corn 1,294.12 pays 963.50 

Company C insures on oats 3,647.05 pays 3,358.92 

Totals $6,000.00 $5,037.66 

I have ascertained the insurance covering on each 
item of property — wheat, corn and oats — by using the 
same rule that has been used in Problems 1, 3 and 
4. Companies B and C have $1,941.18 insurance on 
wheat; 5,000/11,000 of $1,941.18, or $882.35, is the 
amount company B covers on wheat, and 6,000/11,000, 
or $1,941.18, which is $1,058.83, is the amount Com- 
pany C covers on wheat. The compound insurance 
on corn and oats in companies B and C is divided 
the same as I have apportioned the compound insur- 
ance in these companies on wheat. 

Problem No. 6. 

Company A covers pork $ 5,000 

Company B covers pork and flour 5,000 

Company C covers pork and grain 5,000 

Company D covers pork, flour and grain 5,000 

Total insurance $20,000 

Ix)ss on pork $10,000 

Loss on flour 3,000 

Loss on grain 5,000 

Total loss $18,000 

This is Griswold's Statement No. 19. Mr. Manning 
applied "Rice's Rule" to it in Problem No. 2, which 
please examine carefully and note the difference in 
the rule used by him and the one I have applied: 



CONTRIBUTION OF COMPOUND INSURANCE. 189 





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190 THE APPORTIONMENT OP LOSS AND 

Schedule of Insurance and Apportionment of Claim. 

There are in this problem three items covered by 
the insurance — pork, flour and grain. The maximum 
insurance on pork is $20,000, because four $5,000 pol- 
icies cover on pork. Deduct from this $20,000 the 
maximum Insurance on pork, the loss on pork of 
$10,000 gives a maximum over-insurance of $10,000. 
The maximum insurance on flour is $10,000 in com- 
panies B and D each covers for $5,000 on flour and 
other items. Take $3,000, the loss on flour, from 
$10,000, the maximum insurance on flour, leaves $8,- 
000 as the maximum over-insurance on flour. The 
maximum insurance on grain is $10,000, being a $5,- 
000 policy in each company, C and D. This $10,000, 
the maximum insurance on grain, reduced $5,000, the 
loss on grain, leaves $5,000 as the maximum over- 
insurance on grain. 

The maximum insurance on any item is the full 
amount that could be made to contribute to pay a 
loss on the item. In this case, if the loss was all on 
pork and was $20,000 or more, the four companies 
would pay a total loss. In other words, there is $20,- 
000 of insurance that could be called on to pay a loss 
on pork. There is $10,000 of insurance that could be 
made to pay a loss on flour, and also $10,000 that 
could be made to pay a loss on grain. 

The total maximum over-insurance is shown to be 
$22,000. In making the distribution of the actual 
over-insurance, we get 10,00V22,000 of $2,000, or 
$909.09, as covering on pork. Add to $909.09 the loss 
on pork of $10,000, gives us a total insurance on pork 
of $10,909.09. We have 7,000/22,000 of $2,000, the 
actual over-insurance, or $636.36 covering on flour. 
Add $3,000, the loss on flour, to $636.36, gives $3,- 
636.36 as the total insurance on flour. The loss on 
grain is $5,000, which added to 5,000/22,000 of $2,000, 
the actual over-insurance, or $454.55, gives us $5,- 
454.55 as the total insurance on grain. 

Apportionment of Insurance to Companies. 

By the flrst apportionment of the compound insur- 
ance on each item of property to companies, I get the 
following: 

Pork. Flour. Grain. 

Company A insures.. $ 5,000.00 
Company B insures. . 3,095.24 $1,904.76 

Company C insures.. 2,600.00 $2,400.00 

Company D insures.. 1,969.70 1,212.12 1,818.18 



Totals $12,664.94 $3,116.88 $4,218.18 



CONTRIBUTION OF COMPOUND INSURANCE. 191 

The total insurance on pork is $10,909.09, and 
$5,000 of this is in company A and is specific. The 
compound insurance covers $5,909.09 on pork, $3,- 
636.36 on flour, and $5,454.55 on grain. Company B 
covers on pork and flour for $5,000. I apportion the 
$5,000 insurance in company B to pork and flour, on 
the following basis — that is, as the compound insur- 
ance on each item bears to the compound insurance 
on both items, 590,909/954,545 of $5,000 is $3,095.24, 
which is the insurance on pork in company B; 363,- 
636/954,545 of $5,000 is $1,904.76 and this is the 
insurance on flour in company B. Company C covers 
$5,000 on pork and grain. I make 590,909/1,136,364 
of $5,000, that is, $2,600, to cover on pork, and 545,- 
455/1,136,364 of $5,000, or $2,400, cover on grain. Com- 
pany D have $5,000 covering on pork, flour and grain. 
590,909/1,500,000 of $5,000 is $1,960.70, which is the 
amount company D covers on pork; 363,636/1,500,000 
of $5,000 is $1,212.12 and this is the amount com- 
pany D covers on flour, and 545,455/1,500,000 of $5,000 
is $1,818.18, which is the amount company D covers 
on grain. 

Re-Apportionment of Insurance to Companies. 

The first apportionment of insurance to compan- 
ies on pork gives us $12,664.94 when there is only 
$10,909.09 total insurance on the item in all compan- 
ies. We get therefore $1,755.85 more insurance on 
pork than there actually is on it, and this amount 
must be transferred to some other item or items, 
where there is a shortage. The actual insurance on 
flour is $3,636.36 and the first apportionment of in- 
surance to companies gives us $3,116.88. There is a 
shortage here of $519.48 which must be taken from 
the insurance on pork in companies B and D. There 
is $5,064.94 in companies B and D on pork. Com- 
pany B has $3,095.24 of it and we take 309,524/506,- 
494 of $519.48 or $317.46 from the $3,095.24 insurance 
in company B on pork, and add it to $1,904.76, the 
insurance in company B on flour. This gives us 
$2,777.78 insurance on pork and $2,222.22 insurance 
on flour in company B. We take from company D 
which has $1,969.70 on pork 196,970/506,494 of 
$519.48 or $202.02 and add it to $1,212.12, the amount 
company D covers on flour under the first appor- 
tionment, and it gives us $1,414.14 as the total in- 
surance company D covers on flour. There is a short- 
age of insurance in companies C and D on grain 
under the first apportionment of insurance to com- 



192 THE APPORTIONMENT OF LOSS AND 

panies of $1,236.37. This amount must be taken from 
the insurance apportioned under the first apportion- 
ment on pork in these companies. Company C has 
$2,600 and company D $1,969.70, making a total of 
$4,569.70. 260,000/456,970 of $1,236.37 is $703.45, 
which deducted from the $2,600 insurance under the 
first apportionment in company C on pork leaves 
$1,896.55 actual insurance on pork in company C. 
This $703.45 taken from the insurance under the 
first apportionment in company C on pork and added 
to the $2,400 in this company under the first appor- 
tionment on grain, makes the actual insurance in 
company C on grain $3,103.45. 196,970/456,970 of 
$1,236.37 is $532.92, which is the amount of insurance 
in company D under the first apportionment of 
insurance to companies covering on pork, and trans- 
ferred to the insurance on grain. This makes the 
actual insurance on grain $2,351.10 in company D. 
We have taken from the $1,969.70 insurance on pork, 
under the first apportionment $202.02 and added it 
to the insurance on flour, and $532.92 which has 
been added to the insurance on grain, making a 
total of $734.94 deducted, which leaves the actual in- 
surance on pork in company D $1,234.76. 

Problem No. 7. 

Company A covers pork $5,000 

Company B covers pork and flour 5,000 

Company C covers pork and grain 5,000 

Company D covers pork, flour and grain 5,000 

Total insurance $20,000 

Loss on pork $5,000 

Loss on flour 8,000 

Loss on grain 5,000 

Total loss $18,000 

This is Griswold's statement No. 19, with the loss 
on pork changed from $10,000 to $5,000 and the loss 
on flour changed from $3,000 to $8,000. 



CONTRIBUTION OF COMPOUND INSURANCE. 193 






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194 THE APPORTIONMENT OF LOSS AND 



The total insurance on each item of property has 
been ascertained in the same way it was found in 
problems 1, 3, 4, 5 and 6. The first apportionment of 
insurance to companies gave the following results: 

Pork. Flour. Grain. . 

Company A insures. . .$5,000.00 
Company B insures... 714.29 $4,285.71 
Company C insures... 1,000.00 $4,000.00 

Company D insures... 454.55 2,727.27 1,818.18 



Totals $7,168.84 $7,012.98 $5,818.18 

An examination will show that $7,168.84 is $805.20 
more than $6,363.64, the actual insurance in all com- 
panies on pork. It will also show that $7,012.98 is 
$1,168.84 less than $8,181.82, the actual insurance in 
all companies on flour. The actual insurance in all 
companies on. grain is $5,454.54, and as the first 
apportionment of insurance to companies on this 
item is $5,818.18 there is an excess of insurance of 
$363.65 here, which must be transferred to flour. 
The excess insurance of $805.20 on pork must be 
transferred to flour to make good the shortage of 
$1,168.84. These two items of over-insurance on 
pork and grain are transferred to flour, by applying 
the same rule used in problem No. 6, as fully ex- 
plained under the heading "Re-Apportionment of 
Insurance to Companies." 

Problem No. 8. 

Company A covers on pork, flour and grain $ 5,000 

Company B covers on flour, grain and fruit 5,000 

Company C covers on grain, fruit and pork 5,000 

Company D covers on fruit, pork and flour 5,000 

Total insurance $20,000 

Loss on pork $10,000 

Loss on flour 3,000 

Loss on grain 4,000 

Loss on fruit 1,000 



Total loss $18,000 

This adjustment problem differs from the others, 
as each policy covers three different items of prop- 
erty and no two forms are alike. 



CONTRIBUTION OF COMPOUND INSURANCE. 195 



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196 THE APPORTIONMENT OF LOSS AND 

Company A insures on pork $3,159.62 pays $3,086.14 

Company A insures on flour 797.47 pays 669.87 

Company A insures on grain.... 1,042.91 pays 922.15 

Totals $5,000.00 $4,678.16 

Company B insures on flour $1,829.27 pays $1,536.59 

Company B insures on grain 2,317.07 pays 2,048.78 

Company B insures on fruit 853.66 pays 512.20 

Totals $5,000:00 $4,678.16 

Company C insures on pork $3,441.80 pays $3,361.76 

Company C insures on grain 1,163.83 pays 1,029.07 

Company C insures on fruit 394.37 pays 236.62 

Totals $5,000.00 $4,627.45 

Company D insures on pork $3,636.67 pays $3,552.10 

Company D insures on flour 944.69 pays 793.54 

Company D insures on^ fruit 418.64 pays 251.18 

Totals $5,000.00 $4,596.82 

This is a complicated adjustment problem, and 
I believe the application of any rule for the appor- 
tionment of compound insurance to it, will furnish a 
thorough and practical test of the rule. 

The insurance on each of the four items of prop- 
erty is ascertained by applying the same rule that 
has been used in problems 1, 3, 4, 5, 6 and 7. The 
maximum insurance on each item of property is 
$15,000. After deducting the loss on each item, from 
the maximum insurance thereon, we have a maxi- 
mum over-insurance on pork of $5,000, on flour of 
$12,000, on grain of $11,000 and on fruit of $14,000, 
which makes a total maximum over-insurance of 
$42,000. The actual insurance on the four items of 
property is $20,000 and the total loss thereon is 
$18,000, leaving the actual over-insurance $2,000. 
This actual over-insurance is apportioned to each of 
the four items of property, in the ratio that the max- 
imum over-insurance thereon bears to the total max- 
imum over-insurance. 5,000/42,000 of $2,000 to pork, 
12,000/42,000 of $2,000 to flour, 11,000/42,000 of 
$2,000 to grain and 14,000/42,000 of $2,000 to fruit. 
The actual over-insurance apportioned to the four 
items of property is as follows: 

Pork $238.09 

Flour 571.43 

Grain 523.81 

Fruit 666.67 

Total $2,000.00 



CONTRIBUTION OP COMPOUND INSURANCE. 197 

The loss on each item of property added to the act- 
ual over-insurance thereon, gives the total insurance, 
which is as follows: 

Insurance on pork $10,238.00 

Insurance on flour 3,671.43 

Insurance on grain 4,523.81 

Insurance on fruit 1,666.67 

Total $20,000.00 

Apportionment of Insurance to Companies. 
The following result is obtained by the first ap- 
portionment of insurance on each item of property 
to the companies: 

Pork $ 238.09 

Flour 571.43 

Grain 523.81 

Fruit 666.67 

Total $2,000.00 

Insurance on pork $10,238.00 

Insurance on flour 3,671.43 

Insurance on grrain 4,523.81 

Insurance on fruit 1,666.67 

Total $20,000.00 

Pork. Flour. Grain. Wheat. 

Co. A insures. . .$2,792.20 $ 974.03 $1,233.77 

Co. B insures... 1,829.27 2,317.07 $ 853.66 

Co. C insures... 3,115.94 1,376.81 507.25 

Co. D insures... 3,307.69 1,153.85 538.46 

Totals $9,215.83 $3,957.15 $4,927.65 $1,899.37 

The actual insurance apportioned to pork is $10,- 
238.09. We therefore have a shortage of $1,022.26. 
There is an over-insurance on flour of $385.72, on 
grain of $403.84 and on fruit of $232.70, which makes 
a total over-insurance on these three items of prop- 
erty of $1,022.26. This is the same amount that the 
insurance on pork is short. 

Re-Apportionment of Insurance to Companies. 

The over-insurance in companies covering flour, 
grain and fruit which also cover pork is apportioned 
to pork separately from each item in the ratio that 
the insurance in each company on each item or 
division, under the first apportionment of insurance 
to companies, bears to the total of said insurance 
thereon. 

The insurance on flour, under the first apportion- 
ment of insurance to companies gives company A 
$974.03 and company D $1,153.85, making a total in 



198 THE APPORTIONMENT OF LOSS AND 

the two companies covering on flour of $2,127.88. 
We have $385.72 excess insurance on flour under the 
first apportionment of insurance to companies in 
companies A and D, which must be transferred to 
pork. 97,403/212,788 of $385.72 is $176.56 and this 
is added to the insurance in company A on pork. 
115,385/212,788 of $385.72 is $209.16, which is trans- 
ferred from the insurance in company D on flour 
under the first apportionment of insurance to pork. 
Company A now has $797.47 and company D $944.69 
on flour. We take 123,377/261,058 of $403.84, the 
excess insurance under the first apportionment of 
insurance to companies in companies A and C on 
grain, which is $190.86 and add it to the insurance 
on pork. 137,681/261,058 of $403.84 is $121.98, which 
is the excess insurance on grain under the first 
apportionment of insurance to companies, in com- 
pany C, transferred from grain to pork. We now 
have $1,042.91 insurance in company A and $1,163.83 
insurance in company C covering on grain. The $232.70 
excess insurance in companies C and D covering on 
fruit under the first apportionment of insurance to 
companies is transferred to pork; 50,725/104,571 of it, 
or $112.88 from company C and 53,846/104,571 of it, 
or $119.82 from company D. This leaves $394.37 in 
company C and $418.64 in company D covering on 
fruit. The total insurance on pork now in company 
A is $3,159.62, in company C $3,441.80 and in company 
D $3,636.67, making a total of $10,238.09. 

The application of this rule as you read this, may 
appear to be very complicated, but it is not. If you 
keep your work in proper form on your working 
sheets, you will find it to be as simple as any prob- 
lem of proportion. 

This rule may be, and probably is, like Rice's 
Rule and all the other rules, more faulty than the 
Kennie Rule, but I have made many applications of 
it, and it has produced satisfactory results. 

I favor the "Finn Rule" — later known as the 
"Griswold Rule," and now known as the "Kinne 
Rule.'* It makes the compound insurance spe- 
cific on the basis of the loss. It provides for a re- 
apportionment if it is necessary and also a re-re-ap- 
portionment, if the assured has insurance equal to or 
greater than this loss, until his full loss is paid. 

The ''Kenne Rule" has its faults, but it is equita- 
ble and susceptible of general application, and pro- 
tects the assured to the full extent of the policies. 



TABLE OF CASES. 
Cases Cited — 

Angebrodt & Barth v. Delaware M. Ins. Co., 

31 Mo. 593 7 

Bardwell v. Conway Mutual Fire Ins. Co., 118 

Mass. 465 114 

Blake v. Ins. Co., 12 Gray 272 32 

Chisborough v. Home Ins. Co., 61 Mich. 333. . 114 
Christian v. Niagara Fire Ins. Co., 101 Ala. 

634 114 

Continental Ins. Co. v. Aetna Ins. Co., 138 N. 

Y. 16 107 

East Texas Fire Ins. Co. v. Coffee, 61 Texas 

287 114 

Erb V. Ins. Co. (Iowa), 69 N. W. Rept. 263.. 15 
Good V. Buckeye M. F. Ins. Co., 43 Ohio St. 

394 114 

Haley v. Dorchester M. F. Ins. Co., 12 Gray 

545 114 

Herr v. Greenwich Ins. Co., 20 Fa. Sup. Ct. 

169 28 

Howard Ins. Co. v. Scribner, 5 Hill 208 5 

Liscom V. Boston Fire Ins. Co., 9 Met. 205. . . 59 
L. and L. and G. Ins. Co. v. Verdier. 35 Mich. 

395 113 

Mayer v. American Ins. Co., 18 Ins. Law Jour- 
nal 156 52 

Merrick v. Ins. Co., 64 Pa. St. 277 13 

Ogden V. Ins. Co., 50 N. Y. 388 33 

Oskosh Gas Light Co. v. Germania Ins. Co., 
71 Wis. 457 113 

Cases Cited — Decisions Given — 

Armour Packing Co. v. Reading Fire Ins. Co., 

57 Mo. App. 215 91 

Chandler v. Ins. Co. of N. Am. (Vermont), 

41 Atlantic Rept. 502 17 

Cromie v. Kentucky & Louisville Ins. Co., 15 

B. Moroz Ky. 432 58 

Farmers Feed Co. v. Scottish Union & Natl. 

Ins. Co., 173 N. Y. 241...., 101 

Grollimund v. Germania Fire ins. Co. (N. Y.), 

83 Atlantic Rept. 1108 

Lesure Lumber Co. v. Mutual Fire Ins. Co. 

(Iowa), 70 N. W. Rept. 761 23 

Page Bros. v. Sun Ins. Office (U. S. C. C. of 

of A.), 25 Ins. Law Journal 865 10 

Schmaelzle v. Lon. & Lan. Ins. Co. (Conn.), 

53 Atlantic Rept. 841 

Sherman v. Madison M. Ins. Co., 39 Wis. 104 79 
Stephenson et al. y. Agricultural Ins. Co., 

116 Wis. 277 108 



INDEX. 

Page 

Albany Rule 39 

"Amount Insured" — meaning 89 

Average Clause — Co. Ins. Form 88 

Average Clause — Distribution Form 17 

Chicago Rule 24 

Co.-Ins. Clauses 86 

Cromie Rule 57 

Eighty Per Cent. Co-Ins. Clause 86 

English Rule 39 

Excess Insurance 15 

Full Co-Ins. Clause 88 

Griswold Rule 52 

Hartford Rule 23 

Insurance Contract 8 

Kinne Rule 53 

Limitation Clauses 68 

Live Stock — Co-Ins. Clause 89 

Live Stock — Limitation Clause 72 

Maximum Amount at Risk 42 

Pro-rata Contribution Clause 8 

Reading Rule 7 

Rice's Rule 157 

Rice-Daniels' Rule 173 

Three-Fourth Loss Clause 71 

Three-Fourth Value Clause 70 

"Total Insurance" — meaning 39 



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MAY 9 1945 



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